The True Carrying Cost of Vacation Homes: How Insurance Is Eating Second-Home Yields

At first glance, a 9% annual yield can make buying a vacation home sound like a pretty compelling investment.

The headline number, from AirDNA, sits within the 7% to 10% long-term annual return some experts use for diversified U.S. stocks—and is nearly twice the 4.73% yield on a 10-year Treasury in late August.

But it’s not the same thing as a net investment return. Instead, the figure represents projected rental revenue relative to a property’s purchase price before many of the costs required to own and operate the home.

The problem for vacation-home owners is that one of those bills is becoming harder and harder to predict.

A first-of-its-kind analysis released in August by the National Association of Insurance Commissioners (NAIC) found that, even after adjusting for inflation, average premiums per policy rose in all four regions it studied between 2018 and 2024—from 18.3% in the Northeast to 43.3% in the West.

Over the same period, insurer-initiated nonrenewal rates increased 96% to 216%, depending on the region.

The best vacation markets can carry some of the biggest risks

In its report, the NAIC pointed to a fairly straightforward explanation for those startling numbers: Insurers are pricing in more expensive claims and rebuilding costs, while becoming more selective about the risks they are willing to carry.

Katie Lyon, a rental property owner and host of the "Landlord Diaries" podcast, made that same calculation after buying a home in Cape Coral, FL.

She had originally planned to turn it into a short-term rental.

“It felt like a home run, right?” Lyon told Realtor.com® in July. She expected the property to fill up during Florida’s busy season: “We’ll get a bunch of money in, and it’ll be great.”

Then Hurricane Ian struck in 2022.

“We never ended up furnishing it. It got hit by a hurricane, and we just sold it for a really big loss,” Lyon said. She came away viewing short-term rentals, “especially on the coast,” as particularly volatile.

But many of the places carrying that kind of exposure are also exactly where vacation-home buyers want to be.

Realtor.com research found some of the country's highest concentrations of seasonal, recreational, or occasional-use homes in coastal and mountain markets, including Nantucket, MA; Breckenridge, CO; Kill Devil Hills, NC; Key West–Key Largo, FL; and Naples–Marco Island, FL.

In 2024, the West recorded the highest rate of insurer-initiated nonrenewals, at 25.1 for every 1,000 policies, according to the NAIC. The Southeast followed at 22 per 1,000.

The NAIC stresses that homeowners insurance is highly local, but the broader direction is clear. And for second-home owners who hope to turn a profit by renting them out, those regional differences can make a big difference in their bottom line.

Insurify estimates that $300,000 in dwelling coverage on a secondary home costs about $2,693 a year nationwide—but $12,458 in Florida.

The income is still there, but so are the costs

The short-term rental business itself has proven to be surprisingly resilient.

AirDNA’s July outlook described 2026 as a better year to already own a short-term rental than to buy one. It expects U.S. occupancy to average 57.4% this year, slightly above its pre-pandemic average, while revenue per available rental is projected to increase 2.9%.

For existing owners, the harder part can be everything surrounding that revenue.

“The prices are still high, the interest rates are still high. Operating costs are going up,” Lyon said.

“Nothing is budging,” she added. “Nothing is giving.”

One obvious response is to put the property to work more aggressively. In some hot vacation markets, Lyon said, a short-term rental can bring in “two to three times more than monthly rentals.”

But regularly renting out a vacation home can also change the insurance needs of the property.

The Insurance Information Institute says standard homeowners policies typically exclude or limit losses associated with commercial activity. Depending on how frequently and in what manner a home is rented out, an owner may need additional or specialized coverage.

Generating the higher revenue also requires work. Owners can handle guest communication, turnovers, and problems themselves—or pay someone else to do it.

“A lot of people have short-term rental managers, but then it cuts into their profit, their take-home rate,” Lyon said. “So it’s all at a cost.”

And platform protections don't necessarily replace an owner’s policy. Airbnb explicitly tells hosts that AirCover is not a substitute for homeowners insurance or adequate liability coverage.

More affluent buyers are counting on the rental income

The math can be dizzying, but getting it right matters more when rental income is part of what makes the purchase appealing in the first place.

In a recent survey of Americans with a net worth above $1 million, 42% said generating investment income was a major justification for buying a vacation home, up from 33% in 2023. Meanwhile, 31% planned to rent the property out specifically to offset carrying costs.

For those buyers, the gap between what a vacation home can bring in and what it actually costs to hold is not an accounting detail. It can determine whether the investment works at all.

“You need to set realistic expectations with your goals,” Lyon said.

“There is still opportunity,” she added. “You just have to work a little bit harder.”