Ins and Outs of Investing in the Poconos

As a realtor who specializes in helping folks find vacation homes, I’ve gotten a lot of questions about the business of vacation home rentals. Here are some thoughts about the business of vacation home rentals.

Are vacation home rentals in the Poconos a new thing?
First, some history: much of what is referred to the as the Poconos was started in the 1960s and 70s when families started getting second cars and vacation homes became affordable to the middle class. Developers bought big tracts, created manmade lakes and surrounded them with vacation cottages. These stayed as private communities with Property Owner Associations (POA/HOA) supporting the amenities like beaches, pools, etc. Add a few ski resorts, a casino or two, some indoor water parks and you do get a decent shot at 4-season business. Realtors have been renting vacation homes in the area for over 50 years. Licenses and the term “Short-term Rental” are new, but the practice is not. By some estimates there may be close to 7,500 vacation homes that at some point in the year will be rented. As more and more townships adopt regulations and licensing for rentals, the formal count will begin to emerge, but vacation homes are a big reason people come to the Poconos and that have done that for generations

What is a good occupancy rate for a STR in the Poconos?
Some vacation home for sale listings tout rental income above $100K and occupancy rates exceeding 75%, but those are exceptions, not the rule. Many owners are not just investors, they rent for only part of the year.  “Snowbirds” may rent to skiers while they stay in Florida and return for summer.  Other owners may have the place for winter use. Winter sports lovers can get season passes to ski resorts and kids can join a ski team and those families may rent for the ski season (10-12 weeks). Season rentals don’t always go through the booking sites like Airbnb and VRBO. This data then doesn’t show in AirDNA and other rental activity tracking services which is why you should use those services for advice, not as fact.

Proximity to NY/NJ/CT and Philly are both a blessing and a curse as just about everyone drives to get to the Poconos. Long weekends bring high nightly fees, but longer stays require some creative marketing and savvy property management.  Many of the houses are small which makes adding office space for remote work a challenge.  You can offer discounts for weeklong and boost occupancy or keep rates high and have mid-weeks empty. Weekly, monthly and season discounts can raise your occupancy rate, but drop your average nightly rate.

A well-managed, year-round rental property should bring over 50% occupancy with an average of one booking per week.

What is an average rate for a Pocono Vacation Home Rental?
Rates are tied to the number of bedrooms in a home, the more you can comfortably house, the more you can charge. Many of the houses in the region are small chalet, cabin and A-frames with just 3 bedrooms. They are cheaper to buy and they generate lower rental income than bigger homes. Bigger houses are harder to come by, they cost a premium but bring premium rates.

Location is certainly a factor in determining rates. Communities with high HOA fees often have great amenities which draw guests and generate premium rates. Pinecrest Lake, Pocono Farms and Split Rock are just a few communities that have golf courses. Saw Creek Estates, the Hideout and Masthope have their own ski lifts and most of the ski resorts (Camelback, Shawnee, Jack Frost, Big Boulder) have adjoining communities, giving owners the opportunity to charge higher than more modest communities.

But not all the rental business comes from skiing and golf, as the Poconos are home to Pocono Motor Speedway in Long Pond which in the past has had 2 NASCAR stops per year.  Pocono Speedway has other races and an air show; each of these events can bring a surge of rental guests to the communities nearby. Bike riding might bring some guests as will rafting, tubing and kayaking. Locations near these venues can see a rate premium from fans of these sports.

A nice, well-reviewed 3-bedroom house can bring $1500/weekend, $2,200/week in rental income; more for a few peak summer weeks, less for a few shoulder-season weeks. Mid-May to the end of October typically bring the highest warm weather rates. The two-week Christmas break can also bring some of the highest rates of the year.

Are all Pocono vacation homes heated with electric?
No, many homes do have individually controlled baseboard electric heaters, but many others have hot water radiator heating with propane or heating oil as the fuel. Thanks to fracking, we have abundant natural gas supply in Pennsylvania and may homes have supplemental propane heaters and fireplaces.  It’s a cheap way to heat and it gets delivered by a tank truck as a liquid (LGN = Propane). Like its competitor fuel oil, you subscribe to a delivery service that brings you fuel as needed at a set contracted price, ideal for rental properties. Your contracted fuel delivery company can be called on in an emergency if the tank runs empty. Backup electric heaters are always a good idea.

Are all Pocono vacation homes on septic systems?
No. Many boroughs and a few vacation communities have central sewer (Penn Estates, Lake Naomi, Lake Harmony, Split Rock, Camelot Forest, Greenwood Acres, the Hideout, parts of Arrowhead Lake and some of the area around Stillwater Lake) so if you worry about your vacation home being on a septic system, there is hope.  If you do have a septic system, getting your system pumped once a year solves a lot of problems and that costs something like $400.  That’s still half the price of your typical city sewer bill!

As realtors, we hear a lot of concerns about septic systems, their lifespan and how to tell when they fail. I suggest you learn how they work and then, like any home system you’ll know better how to manage them. One primary difference between a septic system and an indoor appliance (water heater, furnace, refrigerator) is that septic systems don’t really die, they are just in an ongoing state of slow decline. Some systems are supported by pumps and pumps do fail, but if most of your system is gravity fed, you can take comfort in knowing that it can still drain. If you get a place with a septic system, get it emptied annually.

One thing to consider is that septic systems are designed and have a permit for a certain sized house. If you elect to expand the house, you might have to expand the septic system.

How much are Real Estate taxes in the Poconos?
Pennsylvania breaks property taxes into county, municipal and school.  Depending on the budget needs of the municipality and its school district your taxes can be high or low. Municipal governments in Pennsylvania are structured/defined as borough, township or city. There are no cities in the Poconos, and the school districts are regional/area and cover multiple municipalities.

If a municipality and school district are predominantly occupied with permanent residents, their tax bills will likely be higher than those school districts and municipalities that cover areas with a high percentage of vacation homes which is why real estate bills in the Poconos are so different. A $300K home in Kidder Township which is mostly vacation communities might have a $3,000/year tax bill, and that same house in the Borough of East Stroudsburg (our college town) may be closer to $8,000/year.  In one extreme, Penn Forest Township is running such a surplus from other funding that they’ve suspended their municipal Real Estate tax, so if you hate taxes, we have a place for you.  If you love municipal services, we also have a place for you. Note that there is a 2% transfer tax on each real estate deal, the buyer pays half, seller pays half.

Are there Realtors who specializes in Vacation Homes and Short-Term rentals?
Yes, the real estate specialty of vacation home sales and short-term rental investment properties is so common that local realtors have created a special interest group. They meet and network to stay informed of the forces that impact the market. The National Association of Realtors also offers a certification in Resort and Second-Home Property Specialist (RSPS). If you are looking for a realtor, you might want to look for one with this designation.

A while back, the Pocono Mountain Association of Realtors put together a task force to look at STRs and their impact on the region and its real estate market. Along with the Pocono Mountains Visitor Bureau they published a white paper called A Resource on Short-Term Rentals in the Pocono Mountains. It remains very relevant and is a good reference point for those interested at looking to investing in the region.

Will Short-term Rentals be Outlawed in the Poconos?
NO! Vacation homes and rentals have been a significant part of the regional economy for 50 years now and it’s extremely unlikely that this will shift.  As with any regulatory environment, we see trends to tighten government control, then loosen it. Today’s climate is trending to tighten, but these regulations are only a few years old. The Poconos are such a large area with many communities and municipalities that competitive forces will always be at play. Property Owners as well as Home Owners are stakeholders in regulations and local leadership (elected officials and POA board members) have to answer to both. The commercial interests aren’t going away, the visitors aren’t going away, and home rentals aren’t going away. Read more about the Regulatory Risks in Investing in the Poconos.

Can I make money operating a STR in the Poconos?
Yes! Wise investment in quality homes that are in well-run communities will generate nice income.  You won’t get rich quick, but you can do pretty well if you are smart, deliver a good experience to your guests and have trusted local partners.

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