Second Home Rental Income: Can It Cover the Costs?

At a 7.60% average second home mortgage rate — the figure Curinos reported as of April 2026 — a $495,000 vacation property financed at 75% loan-to-value carries roughly $31,000 a year in mortgage interest and principal before a single other cost lands. The pitch that rental income covers that math is the central promise of the second-home category, and it collapses under scrutiny more often than the listings suggest. Across the realistic occupancy and fee assumptions documented below, a second home rented part of the year does not pay for itself. It defrays. The gap between those two words is where most buyer projections go wrong.

This analysis models the rental income versus ownership cost question using a total cost of ownership framework, then offsets it with net rental income to produce a single figure: the Finluxy Vacation Home Net Carry Rate. The question is not whether a second home can generate revenue. It plainly can. The question is whether that revenue, after management fees, vacancy, and the IRS, closes the carrying-cost gap for a household earning $150k+ that is buying primarily for personal use.

The numbers at a glance

Five figures frame the entire decision. Each is drawn from a named source and dated below.

Sources: Curinos via Experian (April 2026); Redfin analysis of HMDA data (2024); AirDNA 2025 Outlook; IRS Publication 527 (2025). Management fee range reflects full-service commission models reported by Vacasa, Evolve, and Awning, 2025–2026.

Building the carrying cost from components

Start with a concrete subject. A $700,000 lake property — above the national median to reflect what a $150k+ household typically targets — financed with 25% down leaves a $525,000 loan. At 7.60%, the annual mortgage interest and principal on a 30-year term runs about $44,400. That is the single largest line, and it is roughly nine-tenths of a percentage point higher than the 6.71% Curinos pegged for primary residences in April 2026. The second home rate premium is real but modest; the bigger cost driver is simply the loan size.

Property taxes, insurance, and HOA or community fees stack next. Insurance on vacation properties — particularly in coastal and wildfire-exposed markets — has climbed faster than almost any other line item, which is why a Florida vacation home’s storm-risk cost can diverge sharply from an inland equivalent. Maintenance for a seasonally used property runs higher per dollar of value than an owner-occupied home; the cluster framework here applies 1–2% of property value annually, or $7,000 to $14,000 on a $700,000 home. Vacancy means problems — frozen pipes, storm damage, pest intrusion — go undetected longer.

Then there is the cost that rental income introduces rather than offsets: management. A property you rent while living elsewhere needs someone local. Full-service vacation rental management commonly runs 20% to 30% of gross rental revenue, and at the luxury and high-demand end, Awning and others report fees reaching 35% to 40% once cleaning and ancillary charges are folded in. Property management fees for second homes are the line buyers most consistently underestimate, because they model gross rental revenue and quietly forget that a fifth to a third of it never reaches them.

Mortgage rate: Curinos via Experian (April 2026). Maintenance basis from cluster TCO framework (1–2% of value for vacation properties). Tax, insurance, HOA, utility, and travel figures are illustrative planning estimates and vary materially by state and market; apply local figures for a precise result.

What the rental side actually returns

Gross rental revenue is where optimistic projections live. AirDNA’s Rentalizer will quote a market revenue figure, and it is a credible starting point — but the number that matters is net rental income, which is what survives after management fees, platform commissions, vacancy, and the days you reserve for your own use.

Consider the arithmetic on the lake property. Assume the market supports $400 per night and you make the home available for rental for 200 nights, reserving the rest for personal use and shoulder-season downtime. At AirDNA’s 2025 national occupancy benchmark of roughly 54.9%, you book around 110 of those nights, producing about $44,000 in gross rental revenue. Strip out a 25% management fee — $11,000 — and the figure falls to $33,000. Subtract incremental costs the rental activity itself drives (extra cleaning, supplies, higher utility draw, wear), realistically $4,000 to $6,000, and net rental income lands near $27,000 to $29,000.

Set that against $77,000 in gross TCO. The rental income, even at a healthy nightly rate and a full rental calendar, offsets roughly a third of the carrying cost. That ratio is broadly consistent across markets: a Colorado mountain home’s ownership cost and a coastal property differ in absolute dollars but tend to share the same structural shortfall, because the management fee and occupancy ceiling apply everywhere.

The IRS decides how much of this you keep

Tax treatment is not a footnote here — it can swing net cost by thousands. Under IRS Publication 527 (2025 edition) and the rules summarized in IRS Topic 415, a dwelling is treated as a personal residence if personal use exceeds the greater of 14 days or 10% of the days it was rented at fair market price. Cross that line and your deductible rental expenses get capped at rental income; you cannot use the property to throw off a deductible loss.

The two scenarios produce genuinely different outcomes. In the lake example, 110 rented nights set the 10% threshold at 11 days. Use the home personally for 11 days or fewer and it stays classified as a rental property, preserving fuller expense deductions and depreciation. Spend a month there — the entire point of owning it for most buyers — and you trip into mixed-use territory, where expenses are allocated by the rental-to-total-use ratio and deductions are limited. The IRS 14-day rule tax math is the rare case where using your own vacation home more costs you money at tax time.

There is a separate, narrower provision worth knowing: rent the property 14 days or fewer in the entire year and the rental income is tax-free and need not be reported at all, per Publication 527. That safe harbor is irrelevant to anyone trying to cover carrying costs — 14 nights will not move the needle on a $77,000 TCO — but it explains why some high-income owners simply rent a handful of peak weekends and pocket the proceeds untaxed rather than chase a full rental operation.

The Finluxy Vacation Home Net Carry Rate

The single figure that cuts through the noise is the net carrying cost after rental income, expressed as a percentage of purchase price. The Finluxy Vacation Home Net Carry Rate is calculated as (annual TCO − net rental income) ÷ purchase price × 100. A positive rate means the property costs you money each year on net; a negative rate means it generates income after all costs.

Net rental income modeled from AirDNA 2025 occupancy benchmark (~54.9%) and 25% full-service management fee. Aggressive scenario assumes higher availability and the household trips IRS personal-use limits, altering deductibility (IRS Publication 527, 2025). Figures illustrative; apply market-specific AirDNA Rentalizer data for a precise rate.

Even the aggressive case — renting the home 180 nights, accepting that you barely use it yourself, and tripping the personal-use threshold — lands at a 4.6% annual Net Carry Rate. On a $700,000 property that is $32,000 a year out of pocket after every rental dollar is counted. The light-rental case most buyers actually live, where the home is genuinely a personal retreat rented opportunistically, runs 7.0%. The all-personal-use scenario is 11.0%, which is the honest sticker price of a second home that earns nothing.

What most coverage misses

Real estate marketing frames the choice as binary: rent it and let income carry the cost, or don’t and absorb the full burden. The Net Carry Rate table shows why that framing misleads. Rental income does not flip the property from cost to asset — it compresses the cost from roughly 11% to somewhere between 4.6% and 7% of purchase price annually. That is a meaningful reduction. It is not a free house.

The more subtle point hiding in the data: the harder you rent to close the gap, the more you forfeit the reason you bought. Pushing from light to aggressive rental requires surrendering peak weekends, holidays, and the spontaneous long weekend — exactly the use cases that justify owning over renting someone else’s place. And it pushes you across the IRS personal-use line, changing your tax posture. The household that rents just enough to feel responsible about it captures the worst of both: management headaches and guest wear, but a Net Carry Rate still north of 7%. The economically clean positions are the extremes — minimal rental to preserve enjoyment and the 14-day tax-free safe harbor, or near-full commercial operation — and almost no one occupies them, because the whole appeal of a second home lives in the muddy middle.

Context for the $150k+ household

Demand data frames the stakes. U.S. buyers took out just 86,604 second-home mortgages in 2024, the lowest level in Redfin’s records back to 2018 and only 2.6% of all mortgages — down from a 5% peak in 2020. The Census Bureau counted roughly 3.4 million seasonal housing units nationally as of Q4 2025. This is a thin, affluent market that has cooled sharply as rates rose, which matters because it means resale liquidity and rental competition both vary far more by micro-market than national averages suggest.

For a household at $150k+, the decision rarely hinges on whether the property cash-flows — it almost never does on a financed second home at current rates. It hinges on whether a 4.6% to 11% annual Net Carry Rate is a price worth paying for guaranteed access to a place you love, versus the alternative of renting comparable accommodations for the two-to-four weeks you would realistically use it. Run that comparison honestly: if you would use the home 21 nights a year, $49,000 in net carry on the light-rental scenario is about $2,300 per night of personal use. Premium resort rentals rarely cost that. The math favors ownership when use is heavy, appreciation is expected, and the property carries personal value that a rental cannot replicate; it favors renting when use is occasional and the purchase is rationalized primarily as an investment. Households weighing specific markets should pull live AirDNA Rentalizer figures for their target and model both IRS scenarios before signing, because the threshold between a personal residence and a rental property — 14 days or 10% of rental days — is the one variable they fully control, and it is worth real money. A second home cost guide for $150k+ buyers and the underlying vacation home net carry rate framework are the right starting points before a CPA models your specific split.