Some small investors in Illinois are moving away from long-term rentals. The reason isn’t weak numbers. It’s the legal risk of renting to tenants in the state.
In Chicago’s far northwest suburbs, cities like Elgin and McHenry look like strong rental markets on paper. Home prices are affordable, many residents rent rather than own, and rents are high enough to cover costs and leave a profit.
Even so, Larry Naselli, a residential agent at Baird & Warner in Crystal Lake who has spoken with many investors, says many small investors have moved away from long-term rentals. He says the state’s eviction moratorium caused serious disruption. Some tenants who had always paid on time suddenly stopped.
“It was hard on small investors whose good-paying tenants suddenly turned into deadbeats overnight,” Naselli says. “They still had to keep paying their bills and their mortgage payments.”
The moratorium showed how quickly new rules can change the risks of owning rental property.
The moratorium was temporary, but Naselli says Illinois tenant law creates ongoing risk for landlords.
“Illinois is not a good place as far as renters’ rights. They’re very skewed against the property owner,” Naselli says. “It’s tough to get somebody out if you get a deadbeat, and they may wreck your property, and there’s not a lot of recourse for it.”
Naselli says he has spoken with many investors whose tenants damaged their properties. For these owners, difficult evictions, laws that favor tenants, and limited ways to recover damages have made long-term single-family rentals less appealing.
The risk extends to vacant homes as well. Naselli says squatters in Illinois can have more rights than property owners. The state passed a law addressing squatting recently, he says, but owners of vacant properties still face real risk.
Many of the investors Naselli has spoken with have moved to short-term tourism rentals and mid-term rentals. Mid-term rentals typically house travel nurses and other professionals on temporary work assignments, usually for a few months at a time.
“A lot of those have moved their investment dollars into tourism rentals or midterm rentals, like travel nursing, to secure their asset from destruction,” Naselli says.
Naselli says a guest in one of these rentals is different from a tenant. As he puts it, the guest has no lease and the owner has their credit card. If a guest isn’t keeping their end of the bargain, the owner can get them out. That is much harder with a tenant who stops paying six months into a one-year lease.
Distressed and foreclosed homes have long been a key source of discounted properties for investors. Today, they are scarce. Naselli says foreclosures remain very low because homeowners hold large amounts of equity and the number of homes for sale is limited. Nationally, about 40% of homeowners have no mortgage, Naselli notes.
When owners face financial trouble, that equity usually lets them sell and move on rather than lose the home to foreclosure. That is a sharp contrast to 2008, when many homeowners owed more than their homes were worth. Professional investors also compete hard for the few distressed homes that do come up for sale.
Instead, Naselli points investors toward cash-flow properties. For those who still prefer long-term leases, he says Elgin and McHenry are good options.
“If you’re going to do leases with duplexes or multi-unit or even single-family, Elgin and McHenry are very good areas for investment because of the affordability and decent rents,” he says. “There’s a large number of non-homeowners in those cities as well.”
Elgin and McHenry have a large number of renters. If more investor-owned homes and small apartment buildings there shift to short-term or mid-term use, fewer homes would be available for long-term leases. That could push rents higher for the households least able to afford it.
The numbers in Elgin and McHenry still work for traditional rentals. But for investors who lived through the moratorium, legal risk now matters as much as cash flow. Naselli sees tourism and mid-term rentals as a strong option because they help protect the property from damage and nonpayment.
About the Expert: Larry Naselli is a residential agent with Baird & Warner in Crystal Lake, Illinois, covering the far northwest suburbs of Chicago.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
Explore similar articles from Our Team of Experts.
Houston’s housing inventory has reached its highest level since 2012. That much supply usually gives buyers more bargaining power and opens doors for investors. But according to Kelvin Louie of KL Integrity Group, many Houston-area sellers bought during the pandemic and paid too much. Values in some areas have since dropped, and these sellers have ...
Houston’s fix-and-flip model thrived after the pandemic, but the numbers no longer add up. Investors want to buy distressed properties, meaning homes that need major repairs, and then renovate and resell them. But they are offering prices so far below what sellers will accept that deals rarely close. According to Tilah Spruel, founder of Lux ...
For decades, construction and trades businesses have operated on a simple model: complete a job, collect payment, find the next one. Revenue arrived in irregular bursts tied to project timelines. That model now works against owners at the moment they most need to show value: when they try to sell. Industry transaction data supports this ...
In Long Beach, California, most homes were not built as tract housing, where a builder puts up many similar homes at once. Instead, homes vary block by block in age, layout, and lot size. That variation makes price per square foot, a metric many investors rely on, a poor guide to whether a deal actually ...
Dearborn Heights, a city of about 63,000 residents in western Wayne County, borders both Dearborn and Detroit. Buyers choosing between neighborhoods in Dearborn Heights are sorting themselves into two distinct tiers. One tier is driven by school districts and parks. The other is driven by rental income and affordability. As the market calms, the difference ...
In parts of the northeast Dallas suburbs, listings are expiring faster than in neighboring areas. A listing expires when a home doesn’t sell before the seller’s contract with an agent ends. Whether these expirations create an opportunity for investors depends on which ring of suburbs they target, according to Cindy Dunnican. Dunnican leads The Dunnican ...
