It comes as no surprise that Chicago is one of the top Airbnb cities, being the third largest city in the US, functioning as an international hub for business, industry, finance, technology, telecommunications, and transportation, and hosting a busy and vibrant lifestyle.
In line with this popularity of Airbnb Chicago and with the widespread attempt to control and regulate the Airbnb industry across the nation, recently some new legislation has been passed in the city, which affects majorly any owner of an Airbnb Chicago investment property. The effects are expected to be quite negative for all hosts of Airbnb Chicago investment property.
But let’s first look at some basic numbers derived from Mashvisor to see what an average Airbnb Chicago investment property looks like.
Airbnb Chicago Investment Property Figures
- Median Property Price: $365,500
- Airbnb Rental Income: $2,330
- AirbnbCoC Return: 3.7%
- Airbnb Cap Rate: 8.0%
- Airbnb Occupancy Rate: 46.9%
As you can see from the figures above generated from Mashvisor’s investment property calculator, while the median property price in Chicago is well below the values for other top real estate investing cities such as New York ($493,700), Boston ($1,024,700), and Los Angeles ($938,500), the average monthly rental income from an Airbnb Chicago investment property is quite good.
Profitability is very good as indicated by the cash on cash (CoC) return and the cap rate. The 46.9% occupancy rate is provided by both domestic and international visitors traveling for business or fun.
According to Airbnb data, there are over 7,700 Airbnb Chicago listings. In one year – between 1 November 2015 and 1 November 2016, Airbnb Chicago investment property hosts managed to host over 370,000 guests. Over the World Series weekend alone, Airbnb Chicago hosts made $2.4 million.
New Airbnb Chicago Legislation
As could be expected in such a successful Airbnb city, on 22 June this year the Chicago City Council passed an Airbnb ordinance first introduced by Chicago Mayor Rahm Emanuel on 13 January 2016. To give you a flavor of what the new legislation regulating any Airbnb Chicago investment property looks likes, it is enough to say that some homeowners have called it “draconian” and “unintelligible”.
What Does the New Ordinance Imply for an Airbnb Chicago Investment Property?
Let’s look at the details so that we can judge for ourselves what the likely impact of the new legislation will be. Here is a list of the new rules:
1. 21% Taxes on Short-Term Rentals
Yes, you’ve read correctly. Any Airbnb Chicago investment property will be subjected to a tax of 21.4%, to be precise. Why? Well, first, you have the 17.4% Chicago hotel tax, which is one of the highest nationwide. On top of that, you have a 4% subcharge on short-term rentals.
While the City Council expects to generate an annual income of $2 million just from this 4% tax charged on the booking of any shared-housing unit or vacation rental, you can imagine the combined effect of this 21.4% tax on Airbnb Chicago investment property hosts and guests.
2. $60 Fee
Moreover, each unit listed on Airbnb or similar short-term rental platforms will be charged $60, regardless of whether it attracted any guests or not. Simple calculations show that the City Council will make close to half a million dollars just from this fee (if we assume that the number of Airbnb Chicago investment property listings will remain unchanged at 7,700).
However, for Airbnb Chicago hosts this means that they will lose about one-night rent to cover this fee when it comes to single room rentals.
3. $10,000 License for Airbnb
A third change directly related to finances is the imposition of a license fee of $10,000 that the Airbnb platform will need to pay in order to be allowed to operate in Chicago. The City Council claims that only about 8% of the newly raised revenues will go for Airbnb legislation enforcement and administration, while the remaining will be spent on supportive services to the population including the provision of housing for the chronically homeless.
Despite the promised benefits to society, the new Airbnb Chicago ordinance is expected to have a sizeable impact on Airbnb Chicago investment property hosts.
4. Limit on the Number of Airbnb Units in a Building
In addition to strictly monetary regulations, the new Airbnb ordnance also imposes some other limitations. In specific, buildings with fewer than five residential units can have only one unit listed as Airbnb Chicago investment property at a time.
Buildings with five or more units are limited to listing up to 25% of the total number of units, not exceeding six units. Actually, this limit on the number of listed units within a building can become the cause of some serious disputes among neighbors over who has the ultimate right to list their property as Airbnb Chicago investment property and who doesn’t.
5. Primary Residence Only
In the areas dominated by single-family homes and two- to four-unit buildings, short-term rentals will only be allowed for homeowners renting out their primary residence. This regulation discriminates directly against out-of-state dwellers who have a second home in Chicago as well as against real estate investors who have purchased an Airbnb Chicago investment property.
6. Guest Registration Records
Another administrative complication arising from the new Airbnb ordinance is the requirement that hosts keep guest registration records for any Airbnb Chicago investment property. In addition to complicating the work of Airbnb, some argue that this rule violates the privacy of hosts.
Moreover, the new legislation authorizes building commissioners to inspect short-term rentals, as another claimed attempt at assuring protection and quality of life.
Related: Chicago Investment Property Guide
Backlash Against the New Ordinance
As expected, the new Airbnb ordinance attracted some serious opposition right away. Within a few weeks of the passage of the new legislation, a couple of lawsuits were filed against the City of Chicago.
In one of these suitcases, four Airbnb Chicago investment property hosts, represented by the Liberty Justice Center and the Goldwater Institute, are suing the City of Chicago for punishing responsible homeowners, who are severely affected by the new ordinance.
They hope that Chicago will abolish the passed ordinance and start anew drafting more reasonable Airbnb legislation, while the City is ready to defend its newly introduced regulations and prove that the Airbnb hosts’ legal arguments lack merit.
The Airbnb platform is not involved in the case, whose spokesmen Ben Breit stated that the company is “100 percent focused on educating the Chicago Airbnb host community about the new rules and regulations passed as part of the June ordinance.”
What is left for all those owning or interested in buying an Airbnb Chicago investment property is to wait and see what the outcome of these lawsuits will be. Another crucially important factor to consider – if the ordinance is to stay despite the opposition – is how well the City administration will impose the rules.
Meanwhile, you can check out Mashvisor for metrics and comparative statistics on numerous income properties in Chicago – both for Airbnb and traditional renting.