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 risksIn its report, the NAIC pointed to a fairly straightforward explanation for those startling numbers: Insurers ar...