If you are a homeowner in the City of Chicago with a little extra space, it may have occurred to you to post your space on a short-term vacation rental site like Airbnb or HomeAway. Short-term rentals are a great alternative to hotels when you are traveling. They give you the opportunity to live like a local, get advice on off-the-beaten-track sights and experiences, and it may even save you some money.

Chicago is among the country’s most visited cities, and a 2018 report from Rented.com ranked Chicago in the top three markets for generating income with a vacation rental property. As short-term renting becomes a more common traveling choice, many people with extra space are considering putting their homes on one of these sites to make some side income. However, if you are considering hosting on Airbnb or any other short-term rental site, there are quite a few things you will need to consider.

City of Chicago’s Short-Term Rental (STR) Ordinance

In 2016, the City of Chicago passed a lengthy ordinance placing restrictions, regulations, and taxes on STR properties within the city. This law, which you can read in full here, requires homeowners to apply for a license with the City of Chicago, purchase homeowners insurance, and comply with all necessary inspections. Under this ordinance,

●      Hosts must be the HOMEOWNERS of the property in question,

●      Short-term vacation rentals must be the PRIMARY RESIDENCE of the homeowner,

●      Hosts must provide PROOF OF INSURANCE,

●      The property must not be subject to one or more PROHIBITIONS against home sharing (by the property owner of a condominium building; by homeowners, condominium, or co-op bylaws; or if the property is located in a restricted residential zone).

In the summer of 2017, Chicago’s Department of Business Affairs and Consumer Protection stepped up enforcement by creating a registration system that allows officials to efficiently check Airbnb listings against city-licensed vacation rentals.

In June 2018, Mayor Rahm Emanuel signed into a law a new STR Ordinance intended to further increase taxation on vacation rentals, allow home inspections of rental properties, and levy fines against homeowners found in violation of city regulations. Currently, this new law is being challenged in court by groups alleging that it unconstitutionally restricts property rights.

How Do I Prepare to Host with a Short-Term Rental Site in Chicago?

Get Necessary Permission

Before you begin furnishing your spare room or advertising your home online, you will need to be sure that you have all necessary permissions required in the City of Chicago. This starts with choosing which site you want to use to advertise your home rental. One of the requirements of that 2016 Ordinance is that the platform has to register with the City and receive a license. Airbnb and VRBO are two platforms that have registered as “Short Term Residential Rental Intermediary” or a “Short Term Residential Rental Advertising Platform,” respectively. Before you choose to list with a particular site, make sure to check that it is licensed in Chicago.

You will then need to make sure that you have permission to rent out your space under any homeowners, condominium, or co-op association bylaws or covenants. The City Ordinance specifically recognizes that these associations may choose to prohibit short-term rental activity.

Apply for all Permits and Business Licenses Required

To register as a Shared Housing Host with the City of Chicago, you will need to submit an application and license fee (annual fee of $500). Once the City of Chicago has approved your application, you will receive a registration number. You should include this number in any online listing you post.

Look into the Tax Implications

In addition to providing you with a source of income that will need to be reported on your income tax, there are also local tax implications caused by renting out your home. This is an area where it is best to consult with an attorney or accountant. By allowing people to rent a room in your home, you will be subject to:

1. Hotel Accommodation Taxes
2. Homeshare Tax Surcharge

Make Sure You Have Insurance Coverage

Although you already have homeowner’s insurance, it is very likely that your policy does not cover damages caused by short-term renters. Sites like Airbnb do offer some coverage, but the City of Chicago Ordinance requires additional insurance to protect your home and your belongings. When you apply for a license to list your home, you will need to provide proof of homeowner’s fire, hazard and liability insurance as well as commercial general liability insurance with limits of no less than $1million per occurrence.

Complete Safety and Building Inspections

The City of Chicago reserves the right for the building commissioner to inspect any vacation rental premises. Among other legal duties, the Ordinance requires that hosts provide guests with soap, clean towels and linens, and sanitized food utensils and that the home is equipped with a functioning smoke alarm and carbon monoxide detector.

Set House Rules

Airbnb and other rental sites allow hosts to set their own house rules right on the listing. A clear set of house rules can preempt many issues that may arise and gives you some back-up should something go wrong. Think about your property and how you best want to protect it. Take a look at the City of Chicago Ordinance for its regulations regarding parking, noise, and occupancy limits, and make sure you include these in your own set of house rules. Rules should be communicated to renters before they book and should also be made available in your home as a reminder.

Don’t Forget About the Neighbors

The main challenge that STR hosts have when renting their property is with neighbors. It is important that you consider how your rental will impact your neighbors in terms of safety, noise, and parking. Depending on your home (single family v. condominium) and your homeowners of condominium association bylaws, you may be required to contact your neighbors and inform them of your application for permission to rent. It is often best to go to them first on your own. This will give you a chance to present your idea to them and allow them to express any concerns they may have directly to you. Open communication will help prevent any conflicts or complaints that may arise in the future.

Ask for Help to Avoid Costly Mistakes

Chicago’s Department of Business Affairs and Consumer Protection has a FAQ for the Shared Housing Ordinance. If you are thinking about purchasing a rental or vacation property, call our office in Chicago, at (312) 884-1424 to schedule an appointment with one of our experienced real estate attorneys today!