Chicago, located in Northeastern Illinois, is the most populous city in the State of Illinois and the third largest city in the United States. With a population currently sitting at over 2.7 million, The Windy City comes in third only to New York and Los Angeles. However, while most other major cities in the nation are enjoying population growth, Chicago’s population has actually been in decline for a few consecutive years. In fact, between 2016 and 2017, the metro area saw a loss of about 13,000 people. Nevertheless, with a population of over 9.5 million, the Chicago metro area is not suffering from this loss.
While a current or future Chicago real estate investor might take this as a bad sign of the market’s health, it’s important to look at the demographic makeup of the existing population in the city. Chicago, along with the Midwestern cities of Columbus, Indianapolis, and Madison, beats the entire nation when it comes to having a population in the age range of 25-44, which is considered the “prime worker” years. So the current loss of population is not hurting the economy nor the Chicago housing market as the residents staying behind make up a key part of the workforce in the city. And it’s important to note that buying a rental property in Chicago will mean having an abundant tenant pool as about 57% of the population rents a home rather than own one according to NeighborhoodScout.
Beyond the large workforce in the city, Chicago also has an emerging economy owing to the steady job growth. At the end of 2018, the Chicago-Naperville-Elgin metro area saw a growth rate of 1%, which was only slightly below the national rate of 1.6%. The Chicago real estate market also enjoys the environment of a diversified economy thanks to the city’s central location, making it more accessible than other major metro areas in the US. One of the leading industries in Chicago is manufacturing, specifically of food. Chicago is known as the “Candy Capital” of the nation as a large concentration of candy manufacturing companies call Chicago home. Other major industries include transportation, information technology, health services and technology, printing and publishing, finance, and insurance.
The Chicago housing market is one of the top five markets in the Midwest real estate market according to the annual PWC real estate report. Property investors from all over the nation are showing interest in buying Chicago investment properties as it’s one of the more affordable gateway markets in the US.
|Facts and Market Trends in Chicago|
|Homes For Sale4,876|
|Traditional Vacancy rate8.50%|
|Airbnb Occupancy Rate46.62%|
|Median Rent Price$1,854|
|Median Days on Market64|
|Price to Rent Ratio19.2|
|Average Cap Rate|
|Average Rental Income|
|Median Household Income$55,295|
|RENTAL STRATEGY||STUDIOS||1 ROOM||2 ROOMS||3 ROOMS||4 ROOMS|
The Chicago real estate market has not historically experienced major property appreciation when compared to other large metro areas but beats most other cities in Illinois. Since Q1 of 2000, Chicago properties have experienced a total appreciation of 51.53%, at an annual average growth rate of 2.24% (according to NeighborhoodScout). Although real estate appreciation was minor in 2018 (Zillow reports 0.7% in 2018), it is on the rise in 2019 with a forecasted increase of 1.6%. This positive appreciation still makes the Chicago housing market a good place to buy investment property.
Currently, however, the city comprises a hot seller’s market. This is mostly due to the housing inventory shortage which most markets across the US are experiencing.
In early 2016, the Chicago real estate market was one of the most popular Airbnb destinations and the fifth largest market for the vacation rental industry. The short-term rental market was set for serious growth. Nonetheless, in the last two years, Airbnb growth has slowed down with only a 3.9% increase in listings. This is because of the introduction of strict and costly Airbnb regulations in 2017, forcing the Airbnb Chicago market down to twelfth place for largest markets.
For Airbnb investors in Chicago, renting out a non-owner occupied single family home or multi family home with 2-4 units is illegal as these types of short-term rental properties are limited to primary residences only by law. However, an Airbnb investment property that has 5 units or more can operate legally as long as no more than 1 quarter of the units or up to 6 units (whichever applies) are rented out on a vacation rental website.
In order to operate within the bounds of the Airbnb Chicago laws, you must first identify which category of short-term rental your unit falls under - a shared housing unit (if it’s listed on sites deemed as “intermediaries” by law like Airbnb) or a vacation rental (if it’s listed on sites deemed as “advertising platforms” like HomeAway). Shared housing units are required to register with the city, while vacation rentals are required to obtain a licence.
Besides this, there are also large taxes in place for Airbnb rental owners as well as fees for the appropriate licences and registrations. Any listing found illegally operating will suffer heavy fines of up to $1,500-$3,000 a day.