I have compared rental yields between new condos in downtown Chicago and older multi-family homes in the suburbs. The new constructions in the city have seen longer vacancy periods than expected due to oversupply, while the suburban properties have been consistently filled without vacancies. I confirmed at that time that the assumed vacancy rates can significantly affect the yield even within the same market.

According to Zumper, the average rent in Chicago as of August 2026 is $2,215 per month, while RentCafe estimates it to be higher at $2,525. The Zillow Home Value Index indicates that the average home value in Chicago is about $325,887. Dividing the annual rental income of $26,580 by the purchase price gives a total yield of about 8.2 percent. While this is not a bad figure for the entire Chicago area, the actual vacancy rates can vary greatly depending on the neighborhood and type of building.

According to iPropertyManagement, the rental vacancy rate in the Chicago metro area is about 5.1 percent, with some surveys reporting it as low as 4.7 percent. The effective property tax rate in Cook County is about 1.9 percent, which is relatively high compared to other areas. For a $325,887 home, the property tax would be around $6,192 annually. Adding insurance, management fees, maintenance costs, and applying the 50 percent rule considering vacancy rates, the net operating income would drop to about $12,600, which is less than half of the rental income, resulting in a cap rate of about 3.9 percent. In areas with oversupply like new constructions in the city, this vacancy rate assumption should be taken more conservatively.

If financing is involved, investing $65,000 for the down payment and closing costs, and if the pre-tax cash flow after paying the mortgage principal and interest is $3,250 annually, the cash-on-cash return would be 5 percent. Even a one-month increase in vacancy can significantly reduce this cash flow.

• New construction in the city, conservatively assuming vacancy rates due to oversupply
• Stable suburban properties with low vacancy rates, but limited rent increase potential
• Cap rate = annual NOI, including vacancy loss ÷ purchase price x 100

According to the 1 percent rule, a $325,887 home should rent for $3,259 per month, but the average rent in Chicago of $2,215 to $2,525 falls short of this. When comparing downtown and suburban properties side by side, downtown offers greater potential for price appreciation but also carries a higher vacancy risk, while the suburbs have stable cap rates but limited potential for appreciation, creating a trade-off for each.

Many suburban school districts that Korean families are interested in have good ratings on GreatSchools, but school district boundaries change frequently, so it is advisable to check the assigned school before purchasing. If coming from another state, it is important to factor in that Cook County's property tax rate is significantly higher than that of previous residences.

When looking at the two types from a total return perspective, the conclusion shifts slightly. Downtown new constructions have lower cap rates but greater potential for price appreciation, while suburban properties have stable cap rates but limited price increases. The asset appreciation from mortgage repayment and tax benefits from depreciation apply similarly to both types, so the final choice depends on whether the investor prioritizes cash flow or price appreciation. While the overall rental demand in the Chicago metro area is relatively strong, the city has significant neighborhood variations, making it difficult to definitively say one side is always better. Reflecting on my experience comparing the two properties, I found it most striking that even a conservative adjustment to the vacancy rate assumption could shift the cap rate by nearly one percentage point.

Even within Chicago, the assumptions about vacancy rates can vary completely depending on the neighborhood and type of building, which directly reflects on the cap rate and cash-on-cash return. When comparing properties, please check the actual vacancy situation in the specific neighborhood rather than relying on average figures. This article is not investment or legal advice, and it is recommended to consult with a professional before finalizing any contracts.