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

Our take

This article is US-focused, but the underlying lesson translates directly to South African holiday-home investors eyeing the Cape Winelands, Garden Route, or KwaZulu-Natal North Coast. Who should care: Buyers and existing landlords considering short-term letting on platforms like Airbnb or Lekkeslaap, and the agents advising them. The SA parallel: South African short-term rental owners face their own version of this squeeze. Building insurance premiums have climbed sharply as reinsurers reprice weather and fire risk — particularly in the Western Cape after the 2017 Knysna fires and recurring wildfire seasons. Sectional-title holiday units carry an added layer: the body corporate's master policy may not cover commercial letting activity, leaving individual owners exposed in ways they haven't budgeted for. What to do: Before committing to a holiday-home purchase, buyers should request a specialist short-term letting insurance quote — not just a standard homeowners figure — and model it into their yield calculation. Management fees (typically 15%–25% of revenue in SA), platform commissions, and periods of low occupancy outside peak season must also feature in any honest pro-forma. The Rental Housing Act and municipal short-term letting by-laws add further compliance costs worth factoring in. Bottom line: Gross yield is a marketing number. Net yield, after all carrying costs, is what pays the bond.