Why Airbnb Chicago Is a Risky Investment

Real estate investors like you are always looking to expand their portfolios in new areas. Should you invest in Airbnb Chicago this year?

Table of Contents

1. Chicago Real Estate Market Trends
2. Airbnb Chicago Rules and Regulations
3. 3 Reasons Why Airbnb Chicago Is a Risky Investment
4. Should You Invest in a Traditional Rental Property in Chicago Instead?
5. Where Should You Invest Instead?
6. ​​How to Find a Profitable Investment Property in Illinois
7. To Recap

In this article, we will look at why investing in Airbnb Chicago Illinois is a risky investment decision. Then, we will explore some of the most successful housing markets in Illinois this year. Lastly, we will look at how to find profitable markets in any location.

Chicago Real Estate Market Trends

The Chicago real estate market this year isn’t looking too good for investors. Though there are a lot of properties available, so far they are not performing in favor of rental properties this year. Both traditional and short-term rentals are experiencing these unfortunate declines. Below are the current metrics for the Chicago housing market based on Mashvisor’s latest location report:

• Median Property Price: $574,284
• Average Price per Square Foot: $359
• Days on Market: 52
• Monthly Traditional Rental Income: $2,380
• Traditional Cash on Cash Return: 1.15%
• Traditional Cap Rate: 1.19%
• Price to Rent Ratio: 20
• Monthly Airbnb Rental Income: $3,086
• Airbnb Cash on Cash Return: 1.24%
• Airbnb Cap Rate: 1.28%
• Airbnb Daily Rate: $206
• Airbnb Occupancy Rate: 51%
• Walk Score: 65

As you can see from the statistics above, both long-term and Airbnb properties are not appearing too great this year. The cap rate and cash on cash return for both investment strategies are under 2%. With low cash on cash return, it is unlikely you will generate a profitable income on the investment. Additionally, a low cap rate, though sometimes means it’s a less risky investment, also means you will gain no return on your investment.

As property prices are high, it is essential to ensure your Airbnb in Chicago will perform well, and this data shows that current rental properties in the city are not generating optimal returns.

Airbnb Chicago Rules and Regulations

The Airbnb data above may be enough for some investors to rule out Airbnb Chicago IL for a new investment property. However, the city also has some rules and regulations on short-term rentals that may be unappealing to some investors. 

Single Night Stay Ban

To start, Airbnb Chicago has a ban on overnight stays at short-term vacation properties. This means travelers can only book at least two nights’ stay at your Chicago Airbnb. Accepting it would put you at risk of losing your license to operate rentals in the city.

Licenses

In order to operate an Airbnb Chicago downtown, you must obtain the proper licenses needed from both the city and the state. To start, you will need a license issued by the city to run an Airbnb property or Airbnb arbitrage. This license will cost around $500 and is subject to increase yearly between $60 – $125. 

Insurance

Aside from licenses, Chicago hosts are required to purchase certain Airbnb insurance on their property. This includes insurance against:

• Fire
• Hazards
• Liability
• General Commercial Liability

With all of these in mind, you must also have a minimum of $1 million of coverage for insurance. This is mandatory for Airbnb downtown Chicago properties.

Restrictions and Inspections

Operating an Airbnb Chicago also requires certain inspections. First, the city of Chicago Department of Buildings will inspect your property to ensure it meets city codes. This inspection itself may come at a cost, as well as any repair costs that come from codes that are not met. The Department of Buildings will also need to re-inspect if codes are not met the first time.

Additionally, the Homeowners Association may want to inspect your location, and it is possible they could issue restrictions on the property. If so, you must attend the required meetings to resolve these inspections in order to operate your short-term rental.

Taxes

Like any rental property, you will have to pay taxes on your Airbnb Chicago. In this city, taxes average about 10.5% of the gross rental income or leasing charge. These are subject to change by the city, and more information can be found in the Hotel Accommodations Tax section of the Municipal Code. 

All of these rules and regulations mentioned above are subject to fines if they are not followed. The average fines for people who violate these rules may range from $5,000 – $10,000.

3 Reasons Why Airbnb Chicago Is a Risky Investment

After reviewing the information above, some investors may not want to proceed in investing in Chicago this year. Below are three reasons why Chicago is a risky investment.

1. Properties Are Not Performing Well

As we can see from the metrics, Chicago houses do not seem to be successful so far. To start, Mashvisor’s data shows the cash on cash return is at only 1.24% for Airbnb properties. In vacation rental investments, you always want to make sure you have at least a 2% in this metric. Additionally, the Airbnb cap rate is also significantly low at 1.28%. These metrics indicate little room for passive income.

2. Strict Rules and Regulations

Airbnb Chicago has pretty harsh rules on their short-term rental properties. The single-night stay ban is one of the biggest factors that turn investors away. This can make Airbnb property management difficult, as you may not get as many bookings from potential guests who only wish to stay overnight. This limits the amount of money you can make with your investment.

3. Pricey Fines

Airbnb houses in Chicago are fairly difficult to manage with all of the strict Airbnb rules and regulations. Additionally, you need to ensure you have all of the proper licenses needed to legally operate. If any of these factors are not done with complete accuracy, you are subject to very pricy fines. Paying a $10,000 fine could extremely impact your profits.

Should You Invest in a Traditional Rental Property in Chicago Instead?

If you were considering investing in traditional rentals in Chicago instead of vacation listings, you might want to reconsider. Unfortunately, Mashvisor’s data predicts the same outcome for traditional listings. 

Similar to Airbnb’s, Mashvisor’s data shows the cash on cash return for traditional listings in Chicago is at only 1.15%. Furthermore, the cap rate is just as low at 1.19%. This leaves no room for generating a profit. 

Where Should You Invest Instead?

Even though Chicago real estate may not be the best place for your next investment, there are plenty of cities in Illinois that can be successful locations. Continue reading to learn about the best locations in Illinois for traditional and Airbnb investment based on Mashvisor’s latest data. 

Top 5 Illinois Cities for Traditional Rentals

Below are the most profitable cities for traditional rentals in Illinois based on cash on cash return.

 1. Gillespie

• Median Property Price: $98,071
• Average Price per Square Foot: $67
• Days on Market: 54
• Monthly Traditional Rental Income: $959
• Traditional Cash on Cash Return: 6.78%
• Traditional Cap Rate: 7.37%
• Price to Rent Ratio: 9
• Walk Score: 42

2. Colfax

• Median Property Price: $161,980
• Average Price per Square Foot: $80
• Days on Market: 18
• Monthly Traditional Rental Income: $1,238
• Traditional Cash on Cash Return: 6.11%
• Traditional Cap Rate: 6.54%
• Price to Rent Ratio: 11
• Walk Score: 44

3. Momence

• Median Property Price: $131,450
• Average Price per Square Foot: $99
• Days on Market: 62
• Monthly Traditional Rental Income: $1,165
• Traditional Cash on Cash Return: 5.99%
• Traditional Cap Rate: 6.45%
• Price to Rent Ratio: 9
• Walk Score: 66

4. Maple Park

• Median Property Price: $715,537
• Average Price per Square Foot: $170
• Days on Market: 312
• Monthly Traditional Rental Income: $2,135
• Traditional Cash on Cash Return: 5.48%
• Traditional Cap Rate: 5.68%
• Price to Rent Ratio: 28
• Walk Score: 30

5. Midlothian

• Median Property Price: $200,608
• Average Price per Square Foot: $174
• Days on Market: 36
• Monthly Traditional Rental Income: $1,641
• Traditional Cash on Cash Return: 5.13%
• Traditional Cap Rate: 5.34%
• Price to Rent Ratio: 10
• Walk Score: 65

Top 5 Illinois Cities for Airbnb Rentals

Below are the most profitable cities for Airbnb rentals in Illinois based on cash on cash return.

1. Glendale Heights

• Median Property Price: $264,810
• Average Price per Square Foot: $188
• Days on Market: 22
• Monthly Airbnb Rental Income: $3,903
• Airbnb Cash on Cash Return: 8.06%
• Airbnb Cap Rate: 8.32%
• Airbnb Daily Rate: $172
• Airbnb Occupancy Rate: 64%
• Walk Score: 26

2. Hoffman Estates

• Median Property Price: $322,735
• Average Price per Square Foot: $183
• Days on Market: 25
• Monthly Airbnb Rental Income: $4,932
• Airbnb Cash on Cash Return: 7.85%
• Airbnb Cap Rate: 8.02%
• Airbnb Daily Rate: $209
• Airbnb Occupancy Rate: 65%
• Walk Score: 28

3. Hillside

• Median Property Price: $240,700
• Average Price per Square Foot: $191
• Days on Market: 58
• Monthly Airbnb Rental Income: $3,119
• Airbnb Cash on Cash Return: 7.71%
• Airbnb Cap Rate: 8.00%
• Airbnb Daily Rate: $135
• Airbnb Occupancy Rate: 64%
• Walk Score: 64

4. Indian Head Park

• Median Property Price: $287,250
• Average Price per Square Foot: $226
• Days on Market: 26
• Monthly Airbnb Rental Income: $3,879
• Airbnb Cash on Cash Return: 7.69%
• Airbnb Cap Rate: 7.93%
• Airbnb Daily Rate: $180
• Airbnb Occupancy Rate: 68%
• Walk Score: 16

5. River Grove

• Median Property Price: $276,072
• Average Price per Square Foot: $199
• Days on Market: 42
• Monthly Airbnb Rental Income: $3,086
• Airbnb Cash on Cash Return: 6.23%
• Airbnb Cap Rate: 6.48%
• Airbnb Daily Rate: $120
• Airbnb Occupancy Rate: 64%
• Walk Score: 65

How to Find a Profitable Investment Property in Illinois

Finding successful locations in Illinois is easy. Whether you are looking for 2 bedroom apartments Chicago or single-family homes, Mashvisor can help you with your search. We use reliable and accurate data from sites like Airbnb and the MLS database to ensure our real estate investment tools will provide the best results. 

To find profitable properties, we suggest using our Property Finder tool. This lets you search through all of the available listings in Illinois to find the location that fits your wants and needs. We only make sure to show your listings that will generate an income.

Additionally, we suggest using our Real Estate Heatmap tool to explore profitable cities in Illinois. Here, we provide you with essential real estate data on your city of choice. This tool makes finding profitable investment properties easy.

To Recap

To have the best Airbnb management, you might want to reconsider investing in Airbnb Chicago this year. Mashvisor’s data suggests investing here could be quite risky, and it is likely you will lose money. Consider investing in other Illinois cities instead.

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