A buyer walks into a Saugatuck listing agent's open house on Butler Street, sees the Airbnb reviews printed out on the kitchen counter, and does the math on trailing twelve months of rental income. It looks like a business changing hands. It isn't. In Saugatuck, a short-term rental license belongs to the person who applied for it, not the house it's attached to. Sell the house, and in most cases the license dies with the sale. The buyer doesn't inherit an income-producing asset. They inherit a house that may or may not ever be allowed to operate as one again.
That distinction is easy to miss on a listing sheet and expensive to discover after closing.
The License Is a Permission, Not a Feature
Saugatuck's short-term rental rules run through Chapter 99.5 of the city code, adopted under Ordinance No. 240229-B in February 2024. The ordinance defines a short-term rental as any dwelling rented for less than 31 consecutive days, and it requires a license before that rental can legally operate. What the ordinance does not do, in its original form, is let that license ride along with the deed at sale. The license is issued to a specific holder. When ownership changes, the license is void unless the new owner qualifies and reapplies under whatever rules are in place at that moment.
That would be a footnote in a stable market. It is a much bigger deal in Saugatuck, because the city capped how many new licenses each residential district can issue.
Six Districts, Six Very Different Odds
In August 2024, the Saugatuck City Council voted 4-2 to cap short-term rental licenses in the city's six R-1 residential zoning districts at 20 percent of each district's housing stock. Existing operators were grandfathered in and allowed to keep their licenses until the property sells or changes hands. New applicants have to wait for an opening.
The caps, as published by the licensing framework, break out like this:
| R-1 District | Maximum Licenses |
|---|---|
| Community Residential | 76 |
| Peninsula South | 11 |
| Peninsula West | 10 |
| Maple Street | 7 |
| Peninsula North (Duneside) | 3 |
| Peninsula North (Riverside) | 2 |
Accessory dwelling units sit outside these caps entirely and don't count toward the district total either way.
Here's the number that changes how a buyer should read this table. At the time the council set the 20 percent cap, short-term rentals already made up 32 percent of the housing supply across the six R-1 districts combined, based on city data measured through late June 2024. In the district known locally as the Hill, the figure was 37 percent. That means most of these districts weren't approaching the cap when it passed. They were already well past it, and every one of those existing rentals is grandfathered above the new limit. A new license doesn't open up until enough of those grandfathered operators sell and forfeit their status, and the district actually drops below its ceiling. In the smaller districts, Duneside's 3 and Riverside's 2, that could mean the wait for a single opening runs for years, not months.
The Lottery Nobody Photographs for the Listing
When a district does dip below its cap, the city doesn't award the license to whoever gets there first. Open licenses go through a lottery, with applicants selected from a queue. A buyer who wants to run a property as a short-term rental in a capped district isn't guaranteed anything by owning the house. They're buying a spot in line, and the line only moves when a grandfathered license disappears.
Ethan Barde, a longtime Saugatuck real estate agent and property manager, argued against the cap when it was under debate, telling WOOD TV, "We have to have short-term rentals for this town to thrive." Whatever side of that debate a buyer lands on, the practical point stands: the cap changed the math on every STR-zoned property sale in the six R-1 districts, and that math doesn't show up in a standard listing photo tour.
What Changed in April 2025 and February 2026
The city has continued to adjust the mechanics since the cap passed, and the direction of those changes matters for anyone structuring a purchase carefully.
In April 2025, the council approved amendments that let a license survive certain narrow ownership changes, such as restructuring how a property is held inside a corporate entity or trust, or removing an owner without adding a new one. City Attorney Jacob Witte walked the council through the changes, and all of the measures passed. This is a meaningful carve-out for owners doing estate planning or entity restructuring. It is not a path around the general rule for an arms-length sale to a new buyer. Sell the house to someone outside your existing ownership structure and the license still resets.
In February 2026, the council took up another round of adjustments, this time to the administrative side: the fixed license renewal date, the application window, and a one-time amnesty period for existing license holders, along with more discretion in how the ordinance gets enforced. City records describe the ordinance as covering more than 250 short-term rentals across the community. Councilman Russ Gardner said he came away impressed by the process after the workshop discussion. These changes don't touch the transfer rule directly, but they signal a city still actively tuning enforcement rather than a settled, static ordinance. Anyone buying with STR income in the plan should expect more adjustments, not fewer.
The Lawsuit Still Sitting in the Background
The cap itself has not gone unchallenged. In September 2024, a nonprofit called Saugatuck Neighbors, whose registered agent is Realtor Tammy Kerr, filed suit against the city in Allegan County's 48th Circuit Court. The complaint, brought by attorney Kyle Konwinski of Varnum LLP, argues the city council failed to follow its own charter on conflict-of-interest votes, specifically pointing to then-Mayor Lauren Stanton, who owned property in a district excluded from the cap. Co-founder Laura Durham told Fox 17, "It's very sad here," describing the toll the fight has taken on the community.
The city has denied any wrongdoing and stands behind the ordinance as lawfully enacted. As of the most recent public reporting, the underlying legal challenge had not been resolved. A buyer weighing a capped-district property should treat the cap as current law, but also understand it has an open legal question attached to it that could, in theory, change the framework again.
What This Actually Means at the Offer Stage
None of this means short-term rental ownership in Saugatuck is a bad idea. The city's own economic argument for allowing STRs at all rests on tourism, and that hasn't changed. What it means is that the STR income on a listing sheet is not a feature you're purchasing along with the walls and the roof. It's a status held by the current owner that ends at closing unless you plan around it.
Before writing an offer on a property marketed with short-term rental income, three questions matter more than the trailing revenue number: which of the six R-1 districts is the property in, is that district currently above or below its cap, and is there any queue you'd be entering if the license doesn't survive the sale. A property in Community Residential, with 76 licenses allowed and a large existing base, behaves very differently from one in Riverside, where only two licenses exist and the odds of a near-term opening are close to none. The same square footage, the same water access, and a completely different revenue reality depending on which line on that table the address falls under.
A Few Straight Answers
Does the short-term rental license automatically pass to a new owner in Saugatuck? No. Under the current ordinance, a license held by one owner does not transfer to a buyer at sale. Narrow exceptions exist for certain internal ownership restructurings, but a typical purchase by a new buyer voids the existing license.
What happens if the district is already at its cap when I want to apply? You go into a queue. Applicants are selected through the city's lottery process as licenses become available, which happens only when the number of active licenses in that district falls below the maximum.
Are accessory dwelling units subject to the same caps? No. ADUs are excluded from the maximum license counts and are not counted toward a district's total housing units for cap calculations either.
Saugatuck's short-term rental rules are still moving, and the difference between a property that can legally earn rental income and one that can't often comes down to details that never make it into a listing description. If you're evaluating a Saugatuck property with STR potential, or thinking about what your current license is actually worth at sale, David Isljamovski can walk through the district, the cap, and the timeline before you're locked into an offer. Let's Connect.
