Has insurance become a deal-breaker variable in certain STR markets?

Question

I've been paying closer attention to insurance costs lately, and it feels like we're reaching a point where insurance is no longer just another line item in the underwriting.

A few years ago, most investors could estimate insurance, add a cushion, and move on. Today I'm seeing markets where premiums have doubled, carriers have pulled back, deductibles have increased, and coverage options have narrowed.

At what point does insurance actually change the buy decision?

Have any of you passed on an STR deal primarily because of insurance costs, availability, or coverage concerns?

Or do you view it as just another operating expense that can be managed?

Michael Baum · Answer

So being in a mountain area (north Idaho) our insurance has tripled over the last 9 years.

We use Proper so everyone knows it is a premium product and a very premium price. It has coverage that no one else offers but you do pay for it.

A lot of the expense comes from replacement value/costs in your area.

For example, we are insured at $450 per sqft. Looking at my newly renewed policy, I am confident that I can get the whole house replaced for that. It is $100 over their recommended replacement but seeing as I know the gritty details of rebuilding, I feel better about it.

We are not at a huge risk of fire but it is there as we are surrounded by Ponderosa Pines so there is some risk,. There hasn't been a fire in our immediate area for many years but I could see fires from our deck not more than 10 miles off and wildfires can move like...well...wildfire.

Doing things like adding a metal roof, clearing brush away from the house and documenting it etc can help lower insurance cost from fires. Adding water sensors and other smart tech can also lower premiums.

Jason Wray · Answer

Michael,

As a Floridian and FDIC Banker I have seen several of my clients deals fall through this year due to both HOI & Flood insurance.  Some have been due to the increasing HOA's in some of these Condo's and HOA Beach Neighborhoods.  The crazy thing is in most cases the purchase price and cash flow ratio is great looking at the Principal and Interest.

The problem comes in with ordering the home owners after the last (2) back to back hurricanes in several states like FL, LA, NC, GA, SC have sky roketed in costs in some but not all neighborhoods.  On the flip side I have seen other counties drop and flood is half the cost making solid cash flow deals.

States like Indy, Ohio, Tenn, Iowa have been hot lately and the taxes and insurance are very low and in some cases hard to believe.  I just had a client go under contract on a5 Bed 3 Bath home 2987sqft on 1.5 acres $535K home in Tennessee Annual taxes $1,023.00 a year and $1,100 home owners policy being used/sold as a STR short term rental.

If I could find that option in Florida that would be a great deal but as of right now only places Like Parrish, Palatka, Sebring would make that list!

Jules Aton · Answer

I have USAA for one STR and two other properties but they wouldn't insure my SC beach property. They gave me the name of an alternative insurer who also wouldn't cover it. So back to OP yes I think insurance will be a barrier to some extent with Florida likely being the poster child.

Andrew Steffens · Answer

So, as a Floridian I agree it has definitely risen (as I believe it has nationwide).  It is taking a larger chunk of potential profits, but it really is just another line item in underwriting.  If it works, it works if it doesn't it does not.  I'm more annoyed that my personal residence has gone from $2k to almost $4k but STR's factor about .75% to 1%.  My wife is a licensed insurance agent which is also important to be getting re-quoted annually, there are always new carriers entering the market and offering cheap rates as they enter.

Melissa Haworth · Answer

I think we're already at the point where insurance can absolutely change the buy decision, especially in coastal and storm-exposed STR markets.

In Northwest Florida, I've seen investors get excited about a property's projected revenue only to discover that insurance, wind coverage, flood requirements, and higher deductibles completely changed the cash flow picture. In some cases, the insurance quote was the difference between a property cash flowing and barely breaking even.

For me, insurance has moved from an operating expense line item to a front-end underwriting variable. I want realistic quotes before getting too far into a deal, not after I'm under contract.

What makes it more challenging is that it's not just the premium. Coverage limitations, exclusions, deductibles, and carrier stability all matter. A lower premium doesn't help much if the policy leaves significant gaps in protection or comes with a deductible that could wipe out a year's profit after a major storm.

That said, I don't automatically walk away from a deal because insurance is expensive. Sometimes the market fundamentals, occupancy trends, and revenue potential justify the higher cost. The bigger concern for me is uncertainty. If coverage is difficult to obtain, carriers are exiting the market, or costs are rising faster than revenue, that introduces risk that's much harder to model.

I think investors who are still using generic insurance estimates are putting themselves at a disadvantage. Today, getting actual quotes early in the process is just as important as verifying taxes, HOA fees, and projected rental income.

So yes, I've seen insurance become a deciding factor. Not because it's expensive, but because it can fundamentally alter the risk-adjusted return of the investment.

Dan H. · Answer

I made an offer of $475k on a luxury sierra cabin that the total insurance was almost $7k.  This insurance significantly impacted the projected return.

There should not be any issue to get an insurance quote on a potential purchase.  This makes it easy to use an accurate insurance estimate in the underwriting.  The underwriting either justifies pursuing the property or it does not.   The insurance is just another expense, but it typically is easier to project than some other expenses such as maintenance/cap ex.

Good luck

John Underwood · Answer

Insurance has definitely gone way up years into ownership and in some cases been difficult to get a new policy.

For me USAA has been a life saver.

Mike Grudzien · Answer

All costs are part of the "numbers of the deal".  If any one is out of sync, it no longer is a "deal".  That said, insurance is going a little crazy lately...

Collin Hays · Answer

Premiums have doubled because values have doubled. But yes, it can be a deal breaker.

Michael Koeplin · Answer

Interesting range of perspectives here.

One thing that stands out is that several people aren't necessarily saying insurance kills the deal outright. It's that insurance is starting to influence market selection in a way it may not have a few years ago.

Jason's point about deals looking great until the insurance quote comes in was really what prompted the question in the first place. It seems like in some markets the challenge isn't just the premium, it's the combination of cost, availability, deductibles, and carrier appetite.

Appreciate everyone's input. Most of the examples so far have been coastal markets. I'd be interested to hear whether investors are seeing similar challenges in other harder-to-insure areas, particularly mountain markets.

Michael Koeplin

Has insurance become a deal-breaker variable in certain STR markets?

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