What risks come with renting out an illegal in-law suite?

[John Schulz]

Hi all! I'm a beginner in the Chicago area and I'm just learning the ropes around REI before purchasing my first rental property. I've seen a lot of properties that have finished basements that could be rented out for additional cashflow, but these are typically considered "illegal" in-law suites.

Despite being illegal, it seems everyone is renting out these units, and a lot of investments wouldn't make sense without the cashflow provided by these units. What are the risks involved with renting out an illegal unit? How should I account for these risks when evaluating a property?