Chicago Real Estate Market 2021: What Investors Should Know

With its wide variety of museums, theaters, parks and professional sports teams, Chicago is arguably the cultural epicenter of the Midwest. From Millennium Park to the Magnificent Mile, Chicago has a distinctive urban feel that is different from other major cities.

Although this maritime metropolis is affectionately known as the Windy City, real estate agent Michael Scanlon simply calls it “home”. Scanlon has been investing in the Chicagoland area for some time and shares its financial achievements firsthand with fellow property buyers as a high performing local realtor.

Investing in Chicago can be very profitable, but it can also be complicated. The nuances of different neighborhoods require a knowledgeable local agent to maximize investment potential. Scanlon shares his thoughts on real estate in Windy City in his own words.

Real estate background

I’ve been a real estate agent since 2019, but before that I was an investor myself. I have my MBA in Finance, so I’ve invested heavily in real estate as well as a number of alternative investments.

In the past 12 months, I have personally completed 87 transactions as an agent. I am now leading a team and hope to have more than 200 transactions with them over the next 12 months.

I work with all types of clients, but my focus and specialty is investment property, so I tend to seek investors as clients. Additionally, I do a large number of listings and have helped a number of family members and friends.

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What Makes the Chicago Real Estate Market Unique?

Chicago is one of the cheapest big cities. In the inner city, we can hit caps of 4 to 7%, and many of the suburbs can hit double-digit caps. We have all the amenities of a big city and an average income higher than most areas with these limits.

What numbers can investors expect in Chicago?

The rent varies massively depending on the neighborhood in Chicago. A high-end neighborhood could get a cash-on-cash return of 3 to 6% on a 20% lower investment. However, in some areas these numbers go up to 20% or more – although those areas, to be fair, have their own set of challenges. In many places in the suburbs we still find a rental-price ratio of 1%.

How competitive is the market at the moment?

Chicago, like other places, is highly competitive. Turnkey single-family homes in the suburbs cost 10% above the asking price or more. Many investment properties also receive offers above the asking price within a day or two.

On the listing page, I see seven to 15 offers for the best properties in the first two or three days. We see a lot of competition in the market. However, with the right guidance, you can still find deals.

Which parts of the city are you most looking forward to?

Personally, I like Bronzeville, Hyde Park, and South Shore here in Chicago. There are many areas on the way up, but those areas are still affordable.

A tour shows how all the institutional money is pouring in. The University of Chicago is growing, and the Obama library should be moving in soon. There is also an esports arena and scheduled casino in Bronzeville.

In addition to the new building, there are also beautiful older brick and gray stone buildings in these areas, which give a lot of character. This part of the city is close to the lake and public transportation, and offers golf courses, parks, and many other desirable facilities.

What types of investment properties do you think investors should consider?

With leverage, the house hack numbers are phenomenal here in Chicago. In many other areas (Seattle, San Francisco, New York) I hear house hacking is harder. Chicago is a huge market for home hackers.

What kind of rental demand are you currently experiencing in Chicago?

Rental demand in the suburbs is strong. Downtown will always have some demand, but many people have moved away from the skyscrapers during COVID-19 so the market has subsided slightly.

More about BiggerPockets local markets

Which real estate strategies are most successful in Chicago?

House hacking is the order of the day, both in apartment buildings in the development areas and in condominiums (room by room) in sought-after inner-city districts. BRRRR deals are successful in some areas that may be considered less desirable – the numbers work and there is less competition. Buy-and-hold strategies can work in a number of neighborhoods here, too.

What do the residents do for a living? Are changes to be expected in the industry?

As a large metropolis, Chicago is incredibly diverse and we are not dependent on specific industries. In some areas of Chicago, Amazon fulfillment centers have boosted their economies, but overall, Chicago is extremely diverse when it comes to the industry.

What is your referral network like after graduation?

We have a network of preferred providers that we can recommend, although each investor should do their own due diligence.

What do you personally love about Chicago?

Chicago has the best food, the most museums, and incredible summer culture. (As Kanye said, “Summer Chi!”) Any place in the city is no more than 30 minutes from a forest sanctuary and about an hour from farmland. As part of Chicagoland, we have the best of two different worlds: urban and rural. It’s a great place to live and a great place to invest.

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