Here’s my insight on the vacation home investment market in the Poconos, for early 2023. Inventory is tight, prices are creeping higher and there are more Airbnb listings in the Poconos than ever before. That said, the tourism industry in the Poconos is thriving, visitors keep coming in record numbers and the future looks bring, especially for those operating high-end properties. The regulatory environment continues to tighten as a number of northern townships have now implemented STR ordinances and a few HOAs have added fees and imposed restrictions (see my STR-friendly Communities in the Poconos Scorecard). These rules are mostly reasonable, and it is my belief that reasonable regulation sets a minimum operating standard, helps level the playing field and assures guests that they are being looked out for.
High interest rates have discouraged standard borrowing in recent months across the real estate industry, but that has not suppressed overall demand. At a recent company meeting, a mortgage guru described how they believe that interest rates will be 4.5% in 18 months which is why mortgage rates are starting to decline overall. It an interesting time for investors, as nobody is buying new government bonds due to the debt ceiling, so mortgage-backed securities are in hot demand and high prices for bonds results in lower yield. The mortgage guru went on to say that knowing that people will refinance if rates do drop is leading lenders to focus on points versus rates as their main goal since high rates today will only lead to refinancing in 18 months when the rates drop. Interest rates today should not be a reason not to buy.
One realtor in the room said that if rates fall, then we should see a jump in the prices of homes, and all agreed that is certainly a probable outcome. Home prices in the Poconos seemed to have plateaued in June of 2022 and held steady until January when we started to see inventory shrink. With demand once again surging and supply not keeping up, we are seeing prices rise on homes in the Poconos again. It is possible that this rise in prices will bring sellers back to the market which might help us get to another pricing plateau by summer. As we enter April 2023, we are seeing 12-20 new properties listed each day, still a bit slow for what we would expect for this time of year, but new inventory is coming all the time.
The Poconos have seen a doubling of AirBNB listings over the past three years and yet at the same time we are seeing more people move into the area and turn vacation home communities into extended suburbs of NY/NJ. I believe we are seeing a short-term surplus of STR availability which I feel will be short-lived as new construction is not coming close to meeting demand from those migrating to the area. It is my opinion as a realtor that communities that are comprised primarily of vacation homes are becoming scarcer. Investing is these communities should be viewed cautiously and with the opportunity of long-term gain as this potential scarcity should result in increased value.
Several STR forums have made claims that the Pocono market is saturated with AirBnB properties. Many have commented that gone are the days of easy money and you now have to work for operating returns. I see this as generally true. We are seeing more quality STR properties get listened and there are quality operators who report $200K or more in gross revenue, but they stand out in the quality of their operations and the quality of their properties. I believe we will see 20% of the STR homes generate 80% of the earnings as we see a move to quality in the Poconos. If you are looking for quick returns with little or no work, running an AirBnB in the Poconos may not be for you.
Properties for sale that are marketed as “Turnkey STR” are drawing multiple offers and a number have turned into bidding wars. These are properties that have been recently rehabbed, have been professionally decorated, have obtained a municipal STR license, supported by a team, been listed on the booking sites, and have a nice (albeit brief) rental history. Some of these are listed for sale because the operators have nothing to lose by listing, others may be part of an intentional flip, designed to bring winning STR properties to market and reward the developers for their risk taking and hard work. Their popularity shows that outside investors are still very bullish on the Pocono vacation home rental market.
Another category of homes that might be worth looking at are properties that received a license, but for a variety of reasons, did not do so well as a business. A client of mine just purchased such a home, where the listing agent said, “some people just don’t have the personality to run an Airbnb.” These listings might be very nice homes, but the operator did not invest enough in their property or operation to set it apart from others. Some may have failed to thrive due to having used furniture, tired kitchenware and cheap, worn-out, or lacking property amenities which resulted in mediocre reviews and a lot of missed potential. In some cases, these sellers just want to get out of the market and there may be some opportunities to find a good deal. In other cases, the sellers overpaid in the peak and due to what is typically a 10% cost to sell a home, their goal to get out without a loss may be hard to achieve.
I bring you this insight hoping that if you are looking for an investment property in the Poconos, you look long and hard at the opportunity. The Poconos is recognized as a nice vacation destination and there are great things happening here. Short-term rentals add to the tourism industry and are vital to the regional economy, but in the short-term any market will face fluctuations in income generation and value. As with any investment, look wisely and consider all your options.