Depending how the COVID-19 pandemic pans out, there are likely to be many short-term rental properties up for sale, but U.S.-style deals for distressed rentals are unlikely here in Canada.
If a property owner is unable to make mortgage payments, the bank can foreclose, taking possession of the house and selling it to recover the amount owing on the mortgage.
If you believe American reality TV shows like Property Wars, Flip This House, Flip Men, Flipping Out, etc., buyers can make a killing by buying foreclosed properties way below market value.
In the U.S., banks can sell foreclosed homes for the outstanding value of the unpaid mortgage. Homes with small mortgages can get auctioned off for rock-bottom prices. The bank’s interest is protected, but the former owner is left with zip.
Foreclosed homes may offer rock-bottom prices in the U.S. but the reality in Canada is different. Under Canadian law, the bank has to get full market value when selling a foreclosed home, and any money from the sale in excess of the mortgage balance is returned to the former homeowner.
If the economic slowdown continues to crush demand for short-term rentals, owners with big mortgages may be forced to sell. Many could come on the market all at once and force house prices downward as a result.
The bottom line: if many short-term rental owners are forced to sell, buyers will benefit from lower prices, but U.S.-style deals for distressed rentals are unlikely.
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