Rising insurance costs in coastal markets are quietly redirecting short-term rental (STR) investment away from traditional hubs like Florida toward secondary markets with better risk-adjusted returns. Emir Dukic, CEO of Rabbu, an STR marketplace platform, says this shift is happening essentially out of public view but is having a profound impact on where capital is deployed.
Florida has long been the focal point for short-term rental investors, but insurance costs, once a manageable line item, have become deal breakers. Dukic, whose platform serves 1.5 million unique buyers annually, has observed a clear pattern: investors are increasingly bypassing Florida, not due to regulations or weak demand, but because high insurance premiums undermine the economics of STR ownership.
The Coverage Gap Most Investors Miss
A key issue, Dukic explains, is that many investors misunderstand the insurance requirements for STR properties. “You can’t just go to your local State Farm Insurance and get the proper insurance coverage,” he says. “You can get homeowners’ insurance there, but it’s not going to protect you from really operating the home as a business.”
This distinction is costly. Specialized STR insurance providers charge significantly higher premiums in high-risk areas. “The costs are rising, especially in markets that have the possibility for flooding, or like Florida, in the hurricane danger zone,” Dukic notes.
These rising insurance costs are directly influencing investment decisions. “We’ve seen people make decisions not to enter a market like Florida based solely on the insurance costs,” Dukic says. He emphasizes that insurance is not a minor expense but a critical factor that must be thoroughly evaluated before acquiring an STR property.
The Silent Geographic Reallocation
As a result, investor capital is moving away from high-risk coastal markets toward alternatives with lower insurance costs and fewer natural disaster risks. “We’ve definitely seen people move into new states and new opportunities because of insurance costs and other natural disaster dangers that can drive more risk for the asset,” Dukic says.
According to Dukic, Texas, inland California, and the Carolinas are attracting increased investor interest because they offer more favorable insurance rates and lower exposure to hurricanes and flooding. Even within Florida, investors are shifting focus to areas with less risk. “The Panhandle has a lot of opportunity. The Space Coast does as well,” he explains, pointing to regions with lower hurricane risk compared to Miami or the Orlando area.
This trend is not simply about chasing slightly better returns in less popular markets. Dukic argues that operational costs, especially insurance, can fundamentally change where investors choose to deploy capital. Insurance acts as a hidden tax on specific markets, and investors who account for this from the outset are reallocating funds accordingly.
The Florida Paradox
Despite these challenges, Florida remains the most searched state for STRs on Rabbu’s platform. “By far, when it comes to short-term rentals, everybody thinks of Florida,” Dukic says. However, the gap between search interest and completed transactions highlights a disconnect between perception and financial reality.
The markets around Disney, particularly Kissimmee, exemplify this divide. Dukic notes that these areas face both oversaturation and high insurance costs. “There’s a lot of supply there, and it’s actually pretty high-end supply,” he says. “It’s very common in Florida to have really themed out 5, 6, 7, 8, 9, 10-bedroom houses that the dozens can find. There are whole developments that provide that type of setup.”
With so much inventory and rising insurance expenses, new entrants face a challenging environment. “The biggest mistake is overadding to the oversaturation of markets like Kissimmee and others in Florida,” Dukic says. He adds that while some strategic opportunities remain, they are rare.
The Underwriting Imperative
For those still considering Florida or other high-insurance-cost markets, Dukic stresses the need for rigorous underwriting. “All the calculators we have on our site have insurance costs built into them because we can’t take that as a key data point in your decision making, especially in places like Florida, where it can be a significant cost for you,” he explains.
Dukic says that insurance can no longer be estimated using standard homeowner’s policy costs or treated as an afterthought. Instead, it must be quoted explicitly for STR operations in the target market before any acquisition. This approach represents a shift in how investors evaluate deals, with insurance now a central factor in underwriting.
The Broader Market Implications
The geographic reallocation driven by insurance costs is affecting more than individual investment strategies. As capital moves away from established STR markets toward secondary markets with better risk-adjusted returns, it is likely to spur the development of STR infrastructure and professional management in areas that previously received less attention.
Dukic identifies the Carolinas, parts of Florida with lower risk, Alabama, Louisiana, Texas, Southern California, Colorado, Utah, Ohio, Pennsylvania, and the northeastern states, including Maine, as regions where new opportunities are emerging. “The best opportunities are really along the Carolinas down into Florida, then going west through Alabama, Louisiana, into Texas, and then Southern California,” he says.
Whether this geographic diversification will become a permanent feature of the STR landscape depends on whether insurance markets stabilize. For now, Dukic sees the trend as clear: “Maybe it’s not Florida, maybe it’s Texas, or different parts of California or the Carolinas.” Investors are responding to higher insurance costs by seeking out markets where the numbers work – a shift that is quietly but significantly redrawing the map of short-term rental investment.
