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Forced Landlords in the New Market Reality

The Vancouver real estate market has been interesting to watch. Last year many investors pre-bought condos in the Metro-Vancouver area.

Now, these same Vancouver condos are worth less then when they purchased them. This forces these investors to either:

  1. Walk away from their deposits (if possible),
  2. Keep the property, 
  3. Sell the property to help minimize losses, or
  4. Rent the property.

If they choose to rent the property they become what are known as Forced Landlords. There are many risks inherent in having tenants in your property, and while renting your property may be the best solution to get a regular return on your investment, it can also open investors to possible uncertainty. When the Vancouver rental market softens, which current indicators seem to point to, these Forced Landlords may lose their tenants.

The global economic uncertainty plays a role in the future of Forced Landlords in Vancouver. Keep in mind that the typical investor may own more than one property, and may not necessarily always invest in properties in their hometown. No matter where these investors live, chances are high that they are also suffering from the global economic climate and may be reconsidering their investments. If they decide to restructure their portfolio, the first to go will be their investment properties not in their own locale, in other words, Vancouver properties.  

To put this in perspective, according to CMHC data, about 22% of the downtown Vancouver real estate market is comprised of investors. If even a quarter of them can’t make it through this housing downturn, then 5% of the entire Vancouver market will be “dumped.”  Five percent may even be a conservative estimate. Don’t forget that Vancouver has real estate investors from all over the world.

A similar situation happened when many US investors bought pre-sales in Vancouver several years back. Upon closing, many of these US investors did not close on their Vancouver investments due to the poor US economy. In that situation, the market was still relatively hot so these dumped properties were easily absorbed back into the market without too much strain on the market as a whole. Today, with the current state of the Vancouver real estate market, it may not be so easy to re-absorb the “dumped” properties if this happens right now.

I recommend keeping a close eye on the Vancouver rental market. It may be a leading indicator of things to come in the Vancouver real estate market.

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