Is Your Neighbor’s Airbnb Listing Wrecking Your Condo’s Value?

What May Be Happening Next Door

Who’s the new neighbor?

When you see a new face around your building or town home complex, someone’s probably hosting an out-of-town friend. But when it happens every weekend, you may be witnessing a mini-enterprise built on short-term rentals. It’s not always easy to tell which. But the latter could impact the value of your Chicago condo (though, as you’ll see, the potential impacts are not exclusively negative).

Almost all professionally-managed condo buildings in downtown neighborhoods like River North, Streeterville, and the South Loop discourage short-term rentals by prohibiting lease terms shorter than six or (more typically) twelve months. The aim is to ensure some stability in the resident population, with each unit turning over a maximum of once per year. One notable exception in downtown Chicago is Huron Plaza at 30 East Huron in the Cathedral District (which, at the time of this post, allows month-to-month 30-day rentals and has no cap on the number of units that can be leased).

But even owners and renters in more restrictive buildings sometimes skirt the rules. Building management’s enforcement tactics vary. And enforcement is difficult unless managers get a tip from a door person or resident or find the listing themselves online.

What’s In It For Them?

It’s not hard to see why a neighbor would risk being a scofflaw: the potential reward. While typing this, I saw a 900 square-foot furnished unit at Huron Plaza being advertised for $3,000 per month as a corporate rental. That’s easily a 30% premium to what a 12-month lease would fetch on a monthly basis. Daily rates can be even more lucrative, as sites like Airbnb make it easy to connect with paying occupants.

What’s In It For You?

Short-term corporate or vacation rentals can lead to higher sales prices in some cases, particularly in buildings already popular with property investors. The larger income streams possible mean investors can earn higher returns. As a result, they’re willing to pay more. So if your building’s more liberal when it comes to rentals, it could mean a higher price per square foot relative to sales prices in competing, more restrictive buildings.

Another indirect benefit: Extra income from renting a spare bedroom to a vacationer or two may help a neighbor’s household finances through a rough patch. Funds generated could help with monthly condo assessments or mortgage payments. Certainly, no one in the building wins when neighbors fail to pay their dues or slip into foreclosure.

These reasons may be why some condo owners seem to have a “wink, wink” attitude when it comes to short-term rental activity — against the association’s rules on paper, with little done to curb it in reality.

No Light-Weight Issue

Even with the potential “pluses”, short-term rentals can amount to a lot more than harmless rule-breaking. For starters, imagine dozens of “one-weekend residents” (who’ve often been subjected to little screening) accessing your building’s sauna, elevators, and garage. Entirely possible in buildings with a few hundred units, as many downtown Chicago buildings have. Understandably, security and privacy concerns might arise.

But even if none of that bothers you, short-term renters can strain vital building resources. Careless handling of luggage can nick paint off corridor walls and scratch elevator cabs causing maintenance costs to rise (or the condition of common areas to suffer). Unauthorized parties can happen, disturbing neighbors and leaving stairwells and sun decks trashed. And as front-desk staff takes on more hotel-like “check-in” duties that distract from core responsibilities, less-attentive monitoring of building access can occur.

Once quality-of-life concerns become part of your building’s reputation, units there (including yours) may become less attractive to potential buyers shopping for a home. That’s when values suffer. In a perfect storm of rising common costs, selling activity from unhappy neighbors to willing investors, and falling rents, prices in a building could be depressed for years.

Bottom Line

Whether you see the current vacation rentals trend as an attractive opportunity, an unavoidable reality of the sharing economy, or a practice you’d like to avoid having nearby, it’s worth paying attention to.

Check with your building manager on what current policies and enforcement look like in the place you call home.

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