Chicago Real Estate Market 2021: What Investors Need to 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 atmosphere that is completely different from other major cities.

Although this lakeside metropolis is fondly known as the Windy City, real estate agent Michael Scanlon simply calls it “home.” Scanlon has been investing in the Chicago area for quite some time, now sharing his financial successes first-hand with other real estate buyers as a high-performing local agent.

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

Real estate background

I have been a real estate agent since 2019, but I was an investor myself before then. I have my MBA in finance, so I have invested heavily in real estate, as well as various alternative investments.

In the last 12 months, I have personally conducted 87 transactions as an agent. Now I lead a team and hope to do more than 200 transactions in the next 12 months with them.

I work with all types of clients, but my focus and specialty is investment properties, which is why I tend to look to investors as clients. In addition, I do a large volume of listings and have helped several family and friends.

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What Makes the Chicago Real Estate Market Unique?

Chicago is one of the most affordable major cities. Downtown we can get capitalization rates of 4% to 7%, and many of the suburbs can achieve capitalization rates in the double digits. We have all the amenities of a major city, along with a higher median income than most areas with these capitalization rates.

What kind of numbers can investors expect in Chicago?

Rent varies greatly by Chicago neighborhood. An upscale neighborhood could get a 3% to 6% cash-on-cash return on a 20% initial investment. However, in some areas those numbers rise to 20% or more, although to be fair, those areas have their own challenges. In many places in the suburbs we can still find rental ratios at a price of 1%.

How competitive is the market right now?

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

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

Which neighborhoods are you most excited about?

Personally, I like Bronzeville, Hyde Park, and the South Shore here in Chicago. There are many areas that are improving, but these areas are still affordable.

A walk shows all the institutional money pouring in. The University of Chicago is growing, and the Obama library should be ready soon. There is also an esports field and proposed casino coming to Bronzeville.

To complement the new construction, these areas also have beautiful old gray brick and stone buildings that add a lot of character. This part of town is close to the lake and public transportation, and has golf courses, parks, and many other desirable features.

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

With leverage, the numbers are phenomenal on home hacking here in Chicago. In many other areas (Seattle, San Francisco, New York) I have heard that it is more difficult to hack houses. Chicago is a tremendous home-hacking market.

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

Demand for rentals in the suburbs is strong. Downtown will always be in demand, but many people moved out of skyscrapers during COVID-19, so the market has declined slightly.

More on BiggerPockets local markets

What real estate strategies are having the most success in Chicago?

Home piracy is all the rage, both in multi-family homes in growing areas and in condos (per room) in attractive downtown neighborhoods. 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 multiple neighborhoods here too.

What do residents do for work? Are changes expected in the industry?

As a major metropolitan center, Chicago is incredibly diverse and we are not dependent on specific industries. Some areas of Chicago have seen Amazon fulfillment centers boost their economy, but overall, Chicago is extremely well balanced in terms of industry.

What is your post-closing referral network like?

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

What do you love about Chicago personally?

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

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