How do you know if you can afford a vacation home and its mortgage-- even with the help of renters? Here is a simple profitability formula. If you estimate that one peak-week rental fee should be enough -- and hopefully more than enough -- to pay the home's monthly mortgage if you finance your purchase.
For example, if you borrow $300,000 at the current mortgage rate of 5.6 percent for 30 years on your beach house, your monthly house payment would be $1,703.36. That should be the lowest rental rate you change for a week during summer. If you don't think you can charge that much for rent, don't buy or finance that mortgage.
However, if you can be reasonably sure of renting your home for at least 17 weeks a year with that mortgage payment, you could break even. Most owners can count on 12 peak rental weeks each year. Those 12 weeks each year should pay the annual mortgage. Five additional weeks of non-peak rental income usually enable owners to cover taxes, cleaning and maintenance expenses, and other incidentals.