Hello BiggerPockets community! At the end of this post, you will find a heat map of Chicago Cap Rates by neighborhood. Map areas with a darker shade of blue have higher cap rates.

If a map area has a lighter shade of blue, it means the cap rate is lower in that area. If an area has no shade at all, it means there were no multi-family sales for the time period.

This analysis covers the 2 year period ending on August 14, 2021. The cap rates are based on sales of multi-family properties (5+ units). This sales data was taken from the Multiple Listing system.

What is the average cap rate in Chicago?

For the 2 year period ending on August 14 2021, the median cap rate in Chicago was about 6.18%.

What is a Cap Rate?

Well, I am glad you asked.

Here is a refresher on the concept of Cap Rates.

According to Investopedia:

"The capitalization rate, often referred to as the cap rate, is a fundamental concept used in the world of commercial real estate. It is the rate of return on a real estate investment property based on the income that the property is expected to generate. This metric is used to estimate the investor's potential return on his or her investment. The capitalization rate of an investment can be calculated by dividing the property's net operating income (NOI) by the current market value or acquisition cost of a property - expressed in the following formula:

Cap Rate = Net Operating Income / Current Market Value "

Chicago Cap Rate Analysis

Please keep in mind this is a high level analysis. It should give you a ballpark idea of cap rates in the various Chicago neighborhoods. But some assumptions were made for this analysis.

For example, to determine the net income for a property, I assumed it would be 50% of the Gross Rental Income. Some people cleverly refer to this as the 50% rule :) Also, I tried to weed out properties that require a significant amount of rehab work. Typically those properties will sell below market value and they will make the cap rate look deceptively high.

I spent a lot of time putting this heat map together, so hopefully you find this information useful!

Until the next time...

Mark Killion