A buyer tours a cottage on The Hill in Saugatuck, sees a trailing twelve months of Airbnb income printed on the listing sheet, and starts running the math on how fast that income offsets the mortgage. The math assumes something that isn't always true: that the income comes with the house. It doesn't. It comes with a license, and in Saugatuck the house and the license are two separate things that only sometimes travel together at closing.
That distinction is the piece of this market that catches people off guard, and it's worth understanding before you write an offer on a property advertised as a rental income producer, or before you list one and price it as though the income is guaranteed to transfer.
How The Cap Actually Works
In August 2024, the Saugatuck City Council voted 4-2 to cap short-term rentals at 20 percent of dwelling units in each of the city's six R1 residential districts. The idea, as city officials framed it at the time, was to protect what year-round housing stock remained in a small city where tourism drives much of the local economy.
Here's the part that makes the cap more than a paperwork detail: the city's own data, gathered as of June 29, 2024, showed short-term rentals already comprising 32 percent of housing supply across those six districts combined, well above the new 20 percent ceiling. In the district known locally as The Hill, the concentration ran even higher, at 37 percent.
| Area | STR Share (as of June 2024) | Ordinance Cap |
|---|---|---|
| Citywide, six R1 districts combined | 32% | 20% |
| The Hill (community residential zone) | 37% | 20% |
Those numbers mean the districts with the most established rental history, the ones where a buyer is most likely to find a cottage with a real rental track record, are also the ones furthest over the new limit. New licenses in those districts aren't being issued. They're being queued.
What Happens To The License When The House Sells
Existing STR owners were grandfathered in when the ordinance passed. They keep their license under the terms written into the ordinance, but only while they own the property. Selling or transferring the home ends that license. The new owner has to apply fresh, and if the district they're buying into is already over its 20 percent threshold, that application doesn't go to the front of any line. It goes into a queue, and licenses only open up in an over-cap district if the number of active licenses there drops below the allowable count, at which point the city runs a lottery among waiting applicants.
In practical terms, a buyer purchasing a Hill cottage today with the intention of continuing the previous owner's Airbnb business is not buying that business. They're buying a house that used to run one, in a district that may not be accepting new entrants for a long time. The rental income on the listing sheet describes what the seller did with the house. It doesn't describe what the buyer is permitted to do with it.
This is the mechanism sellers need to be honest about in their marketing, and the one buyers need to verify before they let trailing revenue shape their offer.
The Rule Itself Is Still Moving
Saugatuck's short-term rental ordinance hasn't sat still since it passed. In February 2026, the council took up adjustments to the fixed license renewal date, the application window, and a one-time amnesty period for license holders who had fallen out of compliance, all while overseeing more than 250 active short-term rental licenses citywide.
Then, at a city council workshop on August 19, 2026, less than a week before this was written, council members reviewed a proposal to replace the current five-day grace period for late license renewals with a 60-day window extending 30 days past expiration, applied retroactively. The change reportedly grew out of a request from a property owner who had missed a renewal deadline. No vote was taken at the workshop. Council was expected to revisit it at the following Monday's business meeting.
None of this changes the 20 percent cap itself, but it says something useful about the state of the rule: this is not settled policy that a buyer can look up once and rely on for the life of their ownership. It's an ordinance still being tuned in real time, sometimes in response to the exact kind of situation a new owner might find themselves in.
The Lawsuit That Keeps The Cap Uncertain
Underneath the renewal-date tweaks sits a bigger unresolved question. In September 2024, a nonprofit called Saugatuck Neighbors filed suit against the city in Allegan County's 48th Circuit Court, arguing that the council failed to follow its own charter's conflict of interest rules when it passed the cap. The complaint specifically named then-Mayor Lauren Stanton, arguing she should not have voted on an ordinance that excluded her own residential district and therefore stood to benefit her property value. Attorney Kyle Konwinski of Grand Rapids firm Varnum LLP, representing the plaintiffs, told Crain's Grand Rapids Business that his clients wanted the process redone. The city has denied any wrongdoing and stood by the ordinance as lawfully passed.
As of this writing, that case remains unresolved. There's no telling whether a ruling upholds the cap as written, sends it back to the council for a redo, or strikes it down entirely. Anyone buying or selling a Saugatuck rental property should treat the 20 percent cap as the current rule, not a permanent one, and should check its status directly with the city before making a decision that depends on it holding steady.
Across The River, A Different Set Of Rules Or None At All
One more wrinkle worth knowing if you're looking at "Saugatuck/Douglas" as a single market: Saugatuck's cap is a City of Saugatuck ordinance. It doesn't automatically apply to the Village of Douglas or to Laketown Township, both separate units of government with their own zoning authority. A property just across the Kalamazoo River in Douglas isn't necessarily bound by the same 20 percent threshold, and it isn't necessarily free of one either. If short-term rental income matters to your decision, confirm the rules with the specific municipality the property sits in, not with the Saugatuck ordinance you read about a mile away.
What This Means At The Table
For sellers, the honest move is to market trailing rental income as historical performance under the current owner's license, not as a feature of the property itself. A buyer's lender may ask about this directly, and a listing that overstates transferability creates problems well before closing.
For buyers, the homework is straightforward even if it takes a few phone calls: confirm which residential district the property sits in, ask the city whether that district is currently under, at, or over its 20 percent threshold, and ask what the current queue or lottery situation looks like there. If continuing short-term rental income is central to your offer, that answer should come before your offer, not after it.
None of this is a reason to avoid Saugatuck. The market held a median list price of $799,000 in May 2026, with homes spending a median of 58 days on the market, numbers that reflect steady demand for a small, walkable lakeshore town with real year-round appeal beyond its rental economy. It's a reason to separate the price of the house from the value of a license that may or may not come with it.
A Few Quick Questions
Does a Saugatuck short-term rental license transfer automatically when the property sells? No. Under the current ordinance, the license stays with the owner who holds it and ends when the property is sold or transferred. The new owner must apply for a new license.
If my district is already over the 20 percent cap, can I still apply? You can apply, but new licenses in an over-cap district aren't issued until the number of active licenses there drops below the threshold. At that point, the city fills open spots from a waiting list using a lottery.
Do Douglas and Laketown Township follow the same rules as Saugatuck? Not necessarily. They're separate local governments. Confirm short-term rental rules directly with whichever municipality the property is actually in.
If you're weighing a Saugatuck or Douglas property with rental history attached, or getting ready to list one and want the listing to describe what actually transfers at closing, I'd rather walk you through it before you're under contract than after. Contact Capt'n Sue for a private consultation.
