Illinois Isn't Building Enough Housing. Investors Are Already Seeing The Results.

Why Chicago landlords are seeing stronger rents—and why maximizing the property you already own may be smarter than waiting for the next deal.

If you're a Chicago landlord, you've probably noticed something happening in the rental market.  It's a great time to be a landlord. 

Good apartments aren't sitting around very long.

Rents are climbing.

Prospective tenants are competing for available units.

And in some cases, renters are even offering more than the advertised rent to get the apartment.

That's not normal.

But it isn't happening by accident either.

Illinois simply isn't building enough housing.

And if you own investment property in Chicago, you need to understand what that could mean for your next investment decision.

Illinois Has A Supply Problem

Illinois is estimated to be short approximately 142,000 housing units. But that's only today's shortage. Research from the Illinois Economic Policy Institute and the University of Illinois' Project for Middle Class Renewal estimates the state needs approximately 227,000 additional homes over five years to address the existing shortage and keep up with new household formation.

That's roughly 45,000 new homes every year.

Recent production has been nowhere close.

Illinois averaged only about 19,000 new homes annually between 2019 and 2024.

At the same time:

• Active home listings declined dramatically.

• Housing vacancy rates reached historic lows.

• Building permits declined.

• Demand continued growing.

• Construction costs and financing costs made new development more difficult.

This isn't just a housing affordability story.

It's a supply-and-demand story.

And investors are already seeing the results.

Chicago Renters Are Competing For Apartments

Here's where those statistics become real. Chicago renters are increasingly encountering bidding wars for apartments. Think about that. We're accustomed to seeing buyers bid above asking price for a house. Now some renters are competing against one another for the opportunity to rent an apartment.

Why?

Too many people chasing too few available units. For landlords, that's an important market signal. But it doesn't mean you should simply raise rents because supply is tight. It means you should start thinking differently about the real estate you already own.

Maybe Your Next Investment Isn't Another Building

I recently had this exact conversation with a past client. He was thinking about purchasing another investment property.

But there was another possibility:

Could he add another legal rental unit to the property he already owns?

That changes the conversation.

Instead of automatically asking:

"What should I buy next?"

Maybe the better question is:

"Have I fully maximized what I already own?"

For some Chicago property owners, that could mean exploring:

• A legal basement unit.

• An ADU where permitted.

• Reconfiguring underutilized space.

• Rehabilitating an existing vacant unit.

• Improving a property to increase its rental potential.

Not every property will qualify. Not every project will make financial sense. But in a market that desperately needs additional housing, it's a question worth asking.

Don't Start With The Loan. Start With The Property.

This is where I see investors get ahead of themselves.

They call and ask:

"Al, how much can I borrow?"

That's not my first question. Before we discuss financing, I want to understand whether the project itself makes sense.

If you're considering creating another rental unit, start by determining:

• Can the additional unit legally be created?

• What zoning and building requirements apply?

• What will construction cost?

• What is the property worth today?

• What could the property reasonably be worth after completion?

• What additional rent could the new unit realistically generate?

• How long will it take for that additional income to justify the investment?

Now we can have a financing conversation.

Your Equity Could Become The Capital That Creates More Income

Let's say you've owned your property for years.

You've paid down the mortgage. The property has appreciated. You've built substantial equity. That equity isn't just a number on paper.

Depending on the property, borrower, available equity and project, you may be able to use some of it to improve the building and create another income-producing unit.

Possible financing strategies could include:

• A second mortgage.

• A cash-out refinance.

• Renovation financing.

• Other business-purpose investment-property financing.

The right structure depends on the numbers.

That's why I don't believe the conversation should begin with a loan product.

It should begin with the investment strategy.

Run The Numbers Before You Swing The Hammer

More rental income sounds great.

But additional rent doesn't automatically make a project a good investment.

Suppose creating another unit requires a substantial construction budget.

You need to know what you're getting in return.

Look at:

Construction Cost → Additional Rent → Financing Cost → Increased Property Value → Long-Term Cash Flow

That's the analysis.

Because the goal isn't simply to create another apartment.

The goal is to create another profitable income-producing asset.

There's a big difference.

Chicago Investors May Already Own Part Of The Solution

Illinois needs substantially more housing.

Chicago renters need more choices.

And thousands of Chicago investors already own two-, three- and four-unit properties that may have underutilized space.

That doesn't mean every basement should become an apartment.

It doesn't mean every owner should borrow money and start construction.

It means this:

Before you automatically buy another property, take another look at the one you already own.

There may be an opportunity sitting underneath your feet.

Before You Buy Another Property, Let's Run The Numbers On The One You Already Own

If you're a Chicago real estate investor considering adding another legal rental unit, don't start with the loan.

Start with the strategy.

Let's look at:

• What you owe.

• What your property is worth today.

• What the improvement may cost.

• What the completed property could be worth.

• What the additional unit could generate in rent.

• And whether using your existing equity makes financial sense.

Then we'll determine whether a second mortgage, refinance, renovation loan, or another financing strategy fits the project.

You spent years building equity.

Now let's determine whether that equity can help you create your next income-producing asset.

Breclaw Capital

Commercial & Investor Lending Built Around Real-World Property Strategy

708.680.2090

This article is for educational purposes only. Zoning, ADU eligibility, building-code requirements and permitting should be verified with the City of Chicago and qualified professionals before beginning a project.