How to Start an Airbnb Business in Illinois

Illinois pulled in over 120 million domestic visitors in 2023, and a significant chunk of that demand flows directly into the short-term rental market. Chicago alone accounts for roughly 60 million of those visits, but the opportunity stretches well beyond the city limits. From college-town weekends in Champaign to wine-country getaways in Galena, Illinois hosts are tapping into a state where tourism generates over $46 billion in annual economic impact. That kind of spending creates real openings for anyone willing to learn the regulations, pick the right markets, and operate a professional STR business.

I’ve watched Illinois evolve from a market dominated by downtown Chicago hotel overflow into a state where small-town Airbnbs consistently outperform expectations. The regulatory landscape can feel dense, but hosts who take the time to understand it gain a genuine competitive advantage. This guide breaks down everything you need to know — laws, taxes, city-level data, earnings potential, and the exact steps to launch.

Why Illinois Is a Top Market for Short-Term Rentals

Three factors make Illinois unusually attractive for STR operators. First, Chicago functions as a year-round demand engine. Business travelers, convention attendees at McCormick Place (the largest convention center in North America), and weekend tourists create consistent booking volume across all four seasons. Second, Illinois has strong secondary markets that most new hosts overlook entirely. Galena, Starved Rock, the Shawnee National Forest, and Springfield each draw distinct visitor segments with different peak seasons, which means a diversified Illinois portfolio can maintain high occupancy year-round.

Third, and this is the part that surprises people, rental arbitrage is genuinely viable in several Illinois cities. Lease rates in neighborhoods just outside Chicago’s downtown core haven’t kept pace with nightly STR rates, creating spreads that pencil out even after furnishing costs. The same dynamic exists in Champaign during football season and in Bloomington-Normal near Illinois State University.

Illinois also benefits from robust transportation infrastructure. O’Hare and Midway airports together handle over 90 million passengers annually, and the state’s interstate highway system makes drive-to destinations like Galena (2.5 hours from Chicago) and Starved Rock (90 minutes) accessible weekend getaways. That accessibility translates directly into booking demand.

Illinois Short-Term Rental Laws and Regulations

Illinois doesn’t have a single statewide STR licensing framework. Instead, regulations are set at the municipal level, which means your compliance obligations depend entirely on where your property is located. That said, certain state-level requirements apply universally.

State-Level Requirements

Every STR operator in Illinois must register with the Illinois Department of Revenue to collect and remit the state Hotel Operators’ Occupation Tax. This applies regardless of which city or county you operate in. You’ll also need to report all rental income on your Illinois state income tax return. If you’re operating as a business entity (LLC, S-Corp), you’ll register with the Illinois Secretary of State and obtain an EIN from the IRS.

Illinois does not impose a statewide STR permit requirement, but the state does mandate compliance with the Illinois Accessibility Code for properties that qualify as public accommodations. Most single-family STRs are exempt, but multi-unit buildings with common areas may need to meet accessibility standards.

Key City Regulations

Chicago: Chicago’s Shared Housing Ordinance is one of the most detailed municipal STR frameworks in the Midwest. Hosts must register with the Department of Business Affairs and Consumer Protection (BACP) and obtain either a Shared Housing Unit registration (for primary residences) or a Vacation Rental license (for non-primary residences). The city caps vacation rental licenses per building and requires a $60 registration fee per unit. Properties must carry a minimum of $100,000 in liability insurance. Chicago also restricts STR activity in certain residential zones and requires hosts to maintain a guest registry. Violations can result in fines between $1,500 and $5,000 per offense.

Springfield: The state capital requires a Short-Term Rental Permit for any property rented for fewer than 30 consecutive days. Springfield imposes a 7% local hotel/motel tax on top of the state tax. Hosts must submit proof of insurance and pass a safety inspection before receiving their permit. The permitting process typically takes 2-4 weeks.

Galena: This popular tourist town in Jo Daviess County requires a Vacation Rental License and has specific zoning restrictions that limit STRs to designated areas. Galena enforces occupancy limits based on bedroom count and requires off-street parking for guests. The annual license fee is $150, and properties must pass a fire safety inspection.

Champaign-Urbana: Home to the University of Illinois, this market sees massive demand spikes during football weekends, graduation, and homecoming. Champaign requires a Short-Term Rental Registration and collects a 7% hotel tax. Properties within 1,000 feet of campus face additional noise ordinance enforcement during event weekends.

Recent Regulatory Changes (2025-2026)

Chicago updated its enforcement protocols in late 2025, adding automated monitoring of listing platforms to identify unregistered properties. The city also increased fines for repeat violations and began requiring hosts to display their registration number on all platform listings. Springfield passed an ordinance in early 2026 tightening occupancy limits for STRs in its historic district. Statewide, Illinois legislators introduced House Bill 2847 in January 2026, which would create a voluntary state registry for STR operators — the bill is currently in committee and hasn’t passed, but it signals growing legislative attention to the industry.

Tax Obligations for Illinois Airbnb Hosts

Taxes are where Illinois gets complicated, and where a lot of new hosts make expensive mistakes. Here’s the breakdown.

The Illinois Hotel Operators’ Occupation Tax is 6% of gross rental receipts. This applies statewide to any rental of less than 30 consecutive days. Airbnb collects and remits this tax automatically for bookings made through the platform, but if you list on VRBO, Booking.com, or accept direct bookings, you’re responsible for collecting and remitting it yourself.

On top of the state tax, most municipalities impose their own local hotel/motel tax. Chicago’s combined local rate adds another 4.5% (Municipal Hotel Tax) plus a 1% McCormick Place surcharge. Springfield adds 7%. Galena adds 5%. These local taxes are not always collected by platforms — you need to verify with each municipality whether you’re responsible for direct remittance.

There’s also the Illinois Use Tax if you purchase furnishings or supplies from out-of-state retailers that don’t collect Illinois sales tax. And don’t overlook the Metropolitan Pier and Exposition Authority (MPEA) tax that applies to properties in Chicago and surrounding Cook County.

On the federal side, all rental income must be reported on Schedule E (or Schedule C if you provide substantial services). Illinois STR hosts can deduct mortgage interest, property taxes, insurance, utilities, maintenance, cleaning fees, platform fees, depreciation, and furnishing costs. Hosts who qualify as real estate professionals under IRS guidelines can use STR losses to offset other income — a significant tax advantage that many operators miss.

Best Cities for Airbnb in Illinois

Chicago

Chicago is the anchor of the Illinois STR market and one of the top 10 Airbnb markets in the entire country by revenue volume. The city’s average daily rate (ADR) for STRs sits around $195-$240 depending on neighborhood and season, with occupancy rates averaging 68-74% annually. Peak months (June through September and major convention dates) push occupancy above 85% in well-located properties.

The strongest neighborhoods for STR performance include Wicker Park, Logan Square, Lincoln Park, West Loop, and the South Loop near McCormick Place. A two-bedroom apartment in Wicker Park on rental arbitrage can generate $3,800-$5,200 per month in gross revenue against a lease of $1,800-$2,200. That margin gets tighter after cleaning, supplies, and platform fees, but it’s a viable path for operators who manage expenses tightly.

Chicago’s convention calendar is a massive demand driver. McCormick Place hosts over 100 events annually, and each major convention (like the National Restaurant Association Show or the International Home + Housewares Show) creates a 2-4 day surge where nightly rates can double. Savvy hosts adjust pricing dynamically around these events.

Best property types: 1-2 bedroom apartments for business travelers, 3+ bedroom homes for families and groups visiting for events.

Galena

Galena is a small-town STR powerhouse. With a permanent population under 3,200 but over 1 million annual visitors, the ratio of tourists to residents is extraordinary. ADRs range from $175-$280 for well-appointed properties, with weekend occupancy regularly exceeding 90% from May through October. Annual occupancy averages 55-62%, which is strong for a seasonal market.

The town’s appeal centers on its preserved 19th-century architecture, Main Street shopping, and proximity to ski resorts and golf courses. Properties with hot tubs, fireplaces, and river views command premium rates. A three-bedroom cabin-style rental can gross $45,000-$65,000 annually.

Best property types: Historic homes, cabins with outdoor amenities, properties walking distance to Main Street.

Champaign-Urbana

The University of Illinois creates predictable demand spikes that make Champaign-Urbana a strategic STR market. Football weekends (7 home games per season), graduation, homecoming, parents’ weekend, and Admitted Students Day each generate near-100% occupancy for nearby properties. ADRs during football weekends hit $250-$400, while off-peak rates settle around $95-$130.

Annual occupancy averages 52-58%, but the revenue per available night is skewed heavily toward event weekends. A well-located property within walking distance of Memorial Stadium can gross $30,000-$42,000 per year, with much of that revenue concentrated in 20-25 high-demand nights. The key is pricing aggressively during peaks and maintaining a baseline of business traveler and visiting professor bookings during quieter periods.

Best property types: 2-4 bedroom homes near campus, properties with game-day parking.

Starved Rock / Illinois River Valley

Starved Rock State Park draws over 2 million visitors annually, making it the most-visited state park in Illinois. The surrounding area (Utica, Ottawa, LaSalle-Peru) has seen STR inventory grow 40% since 2021, but demand has kept pace. ADRs average $155-$210, with occupancy running 60-68% from March through November.

This market rewards properties that offer an experience — fire pits, hot tubs, wooded settings, and proximity to hiking trails. A two-bedroom cabin near Starved Rock can gross $32,000-$48,000 annually. The area also benefits from being a 90-minute drive from Chicago, making it a prime weekend getaway destination.

Best property types: Cabins, A-frames, glamping-style properties, anything with outdoor amenities.

How Much Do Airbnbs Make in Illinois?

Earnings vary dramatically by location, property type, and management quality. Here’s what the data shows across Illinois’s top markets:

These figures represent gross revenue before expenses. Typical operating costs (cleaning, supplies, platform fees, utilities, insurance) run 25-35% of gross revenue for owned properties and 35-45% for arbitrage units where you’re also covering lease payments. A well-managed Chicago property clearing $55,000 in gross revenue might net $32,000-$38,000 after all expenses. Arbitrage units in the same market might net $12,000-$18,000 per unit, but you can scale to multiple units without capital for down payments.

The hosts making the most money in Illinois aren’t just picking good markets — they’re optimizing pricing dynamically, maintaining Superhost status for the visibility boost, and stacking multiple revenue streams (experience hosting, mid-term rentals during slow seasons, corporate housing during conventions).

How to Start Your Illinois Airbnb Business

Here’s the step-by-step process, in the order that actually matters.

Step 1: Pick Your Market and Model. Decide whether you’re buying property, doing rental arbitrage, or pursuing co-hosting. Each model has different capital requirements, risk profiles, and regulatory implications. Arbitrage requires less upfront capital but demands landlord approval and strong cash flow management. Buying gives you equity appreciation but ties up significant capital. Co-hosting lets you start with zero properties of your own.

Step 2: Research Regulations for Your Specific City. Don’t rely on state-level guidance alone. Call your city clerk’s office, check the municipal code, and verify zoning for your target address. In Chicago, this means confirming your building allows STRs under the Shared Housing Ordinance. In smaller markets, it may mean verifying there’s no HOA restriction or county ordinance you’ve missed.

Step 3: Form Your Business Entity. An LLC is strongly recommended for liability protection. File with the Illinois Secretary of State ($150 filing fee), obtain an EIN from the IRS, open a dedicated business bank account, and register with the Illinois Department of Revenue for tax collection. Total setup cost runs $200-$400 including the filing fee and a basic operating agreement.

Step 4: Secure Your Property. For arbitrage operators, this means presenting a professional proposal to landlords that addresses their concerns about liability, noise, and property care. Include your insurance coverage, guest screening process, and noise monitoring plan. For buyers, run the numbers using actual STR revenue data for comparable properties, not projections based on hotel rates.

Step 5: Get Licensed and Permitted. Apply for your municipal STR permit or registration. In Chicago, budget 3-6 weeks for the BACP registration process. In smaller cities, 1-3 weeks is typical. Don’t list your property until you have your permit in hand — the fines aren’t worth the early revenue.

Step 6: Furnish and Photograph. Budget $3,000-$7,000 per bedroom for furnishing (bed, linens, nightstands, lamps, decor, towels, kitchen essentials). Hire a professional photographer — listings with professional photos get 40% more bookings according to Airbnb’s own data. The $200-$400 investment in photography pays for itself within the first week of bookings.

Step 7: Set Your Pricing and Go Live. Use dynamic pricing tools (PriceLabs, Wheelhouse, or Beyond Pricing) rather than setting a flat nightly rate. Your pricing should reflect day-of-week patterns, seasonal demand, local events, and competitor rates. Launch with a slightly lower rate (10-15% below market) for your first 3-5 bookings to build reviews, then ramp up to market rate.

Step 8: Build Systems for Scale. Automate messaging, cleaning scheduling, and review requests from day one. Even with a single property, building these systems early means you can add units without proportionally increasing your workload. Most successful Illinois hosts manage 3-5 properties before they need any hired help.

Illinois STR Insurance and Liability

Standard homeowners or renters insurance almost never covers short-term rental activity. If a guest is injured in your property and you’re operating without proper STR coverage, you’re personally exposed to the full cost of a lawsuit. This isn’t theoretical — it happens regularly.

Illinois STR hosts need a dedicated short-term rental insurance policy or a commercial hospitality policy. Options include Proper Insurance, CBIZ, and Safely, which are purpose-built for STR operators. Coverage should include general liability ($1 million minimum, $2 million preferred), property damage, loss of income, and guest medical payments.

Chicago specifically requires $100,000 minimum liability coverage for all registered STR units. Other Illinois municipalities are increasingly adding insurance requirements to their permitting process. Even where it’s not legally required, operating without adequate coverage is a risk no serious host should take.

Airbnb’s Host Protection Insurance (now called AirCover) provides some baseline coverage, but it has significant exclusions and isn’t a substitute for your own policy. VRBO’s liability coverage is similarly limited. Treat platform coverage as a backup layer, not your primary protection.

Expect to pay $1,200-$2,500 annually for a comprehensive STR insurance policy in Illinois, depending on property value, location, and coverage limits. That’s roughly $100-$210 per month — a cost that’s easily absorbed by a property generating $3,000+ in monthly revenue.

Why 10XBNB Gives You the Edge in Illinois

Illinois rewards operators who understand the details — the city-by-city regulatory patchwork, the seasonal pricing dynamics, the event-driven demand surges. Most new hosts spend months figuring this out through trial and error. The 10XBNB system compresses that learning curve dramatically.

The program covers everything from identifying high-margin markets within Illinois to negotiating arbitrage leases, setting up dynamic pricing, building automated operations, and scaling to multiple properties. Students in the program have launched successful STRs in Chicago, the suburbs, and downstate markets using the exact frameworks taught in the course.

Whether you’re targeting a single Chicago apartment for supplemental income or building a portfolio of properties across multiple Illinois markets, the fundamentals are the same: pick the right market, understand the regulations, optimize your operations, and scale systematically. 10XBNB teaches each of those steps with specificity, not generic advice you could find in a blog post. You can also learn the fundamentals of making money on Airbnb without owning property — a model that works especially well in Illinois’s arbitrage-friendly markets.

Frequently Asked Questions

Do I need a license to run an Airbnb in Chicago?

Yes. Chicago requires all short-term rental operators to register with the Department of Business Affairs and Consumer Protection. If the property is your primary residence, you need a Shared Housing Unit registration. If it’s not your primary residence, you need a Vacation Rental license. Operating without registration can result in fines of $1,500-$5,000 per violation.

How much tax do Illinois Airbnb hosts pay?

At minimum, you’ll pay the 6% state Hotel Operators’ Occupation Tax on all rentals under 30 days. Most municipalities add their own local hotel tax — Chicago adds 4.5% plus a 1% McCormick Place surcharge, Springfield adds 7%, and Galena adds 5%. Airbnb collects the state tax automatically, but local tax remittance varies by city. You’re also responsible for reporting rental income on your state and federal tax returns.

Can I do rental arbitrage in Illinois?

Rental arbitrage is legal in Illinois, but you must have explicit written permission from your landlord to sublet the property as a short-term rental. You’ll also need to comply with all local STR regulations, including registration and tax collection. Chicago’s Shared Housing Ordinance applies to arbitrage units just as it does to owned properties. Some landlords in Chicago and suburban markets are open to arbitrage arrangements, especially when presented with a professional proposal that addresses liability and property care.

What’s the best area in Illinois for Airbnb outside of Chicago?

Galena consistently ranks as the strongest non-Chicago market, with high ADRs ($175-$280) driven by tourism demand that far exceeds the town’s tiny population. Starved Rock area is a close second, especially for experience-oriented properties like cabins and A-frames. Champaign-Urbana offers a different dynamic — lower base rates but extreme peaks during university events that can generate a large portion of annual revenue in just 20-25 nights.

Do I need an LLC to host on Airbnb in Illinois?

An LLC isn’t legally required, but it’s strongly recommended. An Illinois LLC costs $150 to form and provides personal asset protection if a guest files a lawsuit. For hosts managing multiple properties or doing rental arbitrage, an LLC also simplifies tax reporting and creates a professional business structure that landlords and partners take more seriously.

How much does it cost to start an Airbnb in Illinois?

For rental arbitrage, budget $5,000-$12,000 total: first month’s rent and security deposit ($2,000-$4,500), furnishing ($3,000-$7,000 per bedroom), photography ($200-$400), initial supplies ($300-$500), LLC formation ($150), and permits (varies by city). For property purchase, add your down payment and closing costs. Most arbitrage operators in Illinois reach profitability within 2-3 months of their first booking.