A buyer finds a cottage two blocks off Butler Street, pictures the rental income covering the mortgage, and assumes the math works the way it worked for the last three owners. Then someone mentions the cap. Then someone else mentions the township line running through the middle of the neighborhood. By the time the buyer understands what they're actually purchasing, the offer deadline has usually already passed.
Saugatuck looks like one market from the road. It is not. Since 2024, the City of Saugatuck has been actively splitting its own housing stock into tiers based on whether a short-term rental license is even obtainable, and the boundary between the city and Saugatuck Township adds a second layer that has nothing to do with price or square footage.
The cap that filled up before some buyers noticed it existed
In 2024, after sustained pressure over how much of the housing stock had converted to vacation rentals, FOX 17 reported that the Saugatuck City Council capped short-term rental licenses in the city's six R-1 residential districts at 20 percent of each district's housing supply. The council's own count that year showed rentals already running at 32 percent of housing stock across those six districts combined. One area in particular, the residential zone locals call the Hill, was already at roughly 37 percent. That district didn't just approach the new limit. It exceeded it on the day the cap took effect, which means no new short-term rental licenses can be issued there until existing licenses drop out through non-renewal or non-transfer.
City Manager Ryan Cummins framed the goal at the time as a balancing act rather than a retreat from tourism.
"We welcome visitors. We want them to come." — Ryan Cummins, quoted by FOX 17
That balancing act now means two homes a few doors apart in different R-1 districts can carry entirely different investment potential. One sits under a district that's still accepting new license applications. The other sits in a district that's full, where no new short-term rental license can be issued until an existing license drops out through non-renewal or non-transfer.
One zip code, two separate rental systems
The cap only governs property inside Saugatuck's city limits. Step across into Saugatuck Township, which surrounds much of the city and shares the same mailing address conventions, and you're operating under a completely different rental inspection and certificate program that applies to both short-term and long-term rentals. A property with a Saugatuck address tells you almost nothing about which system governs it.
City of Saugatuck | Saugatuck Township | |
|---|---|---|
Governing framework | Chapter 99.5 of the city code, license-based | Separate township rental inspection and certificate program |
District-level caps | Yes, capped at 20% of housing supply per R-1 district | Separate township system |
Fire inspection authority | The city code assigns inspections to the Saugatuck Township Fire District, even for city-licensed rentals | Same fire district, under township process |
License transferability | According to Saugatuck Neighbors, licenses are non-transferable to a new owner | Governed independently by township rules |
The fire inspection line is the detail that trips people up most. Even a rental licensed entirely within city limits still requires sign-off from the Saugatuck Township Fire District. The city and the township are not competitors here so much as two overlapping bureaucracies.
Rental history is not the same thing as rental rights
Before the 2024 ordinance, some Saugatuck properties operated under older short-term rental certificates. Those didn't simply carry forward.
This matters most for anyone underwriting a purchase based on a seller's rental income statements. What matters is whether the specific parcel, in its specific zoning district, still has room under the cap and what the city's current rules allow for any existing license.
What the license actually requires once you have one
Getting a license in an uncapped district isn't a formality either. The city's fee schedule lists a license fee, with an additional charge if the property doesn't pass its first fire inspection and needs a reinspection. Owners also have to designate a local agent. Occupancy isn't left to the owner's judgment either. It's set by a formula, two occupants per bedroom plus two more per finished floor, and confirmed by the township fire inspection referenced above.
The city also requires every rental to hand guests a copy of its Good Neighbor Guide, covering noise, trash, and parking. None of this is unusual for a tourism-driven lakeshore town, but it adds real, recurring cost and administrative overhead on top of whatever the cap already restricts.
The fight over the cap is still active
The rental cap did not settle the issue. A resident group calling itself Saugatuck Neighbors, through counsel, filed a legal complaint against the city arguing that the cap was adopted without following the process required under the city's own charter. That dispute has not resolved the underlying policy question, and the council has continued adjusting the ordinance since.
According to WHTC, as of February 2026, the council was revisiting fixed license renewal dates, the application window, and considering a one-time amnesty period for existing license holders, all while overseeing more than 250 licensed short-term rentals within city limits. That signals that the rules a buyer reads today may not be the exact rules in place by closing, let alone a year after that.
What to verify before you write an offer around rental income
Before treating a Saugatuck property as a rental investment, confirm the following, in this order:
- Whether the parcel sits inside City of Saugatuck limits or Saugatuck Township, since the two run entirely separate licensing systems
- Which of the six R-1 districts the property falls into, and whether that district is currently under, at, or over the 20 percent cap
- Whether an existing short-term rental license is attached to the property, its expiration date, and whether it's a post-2024 license
- Whether the license is transferable to a new owner
- The full cost of compliance: license and reinspection fees, and the ongoing requirement to retain a local agent
FAQ
Does the 20 percent cap apply everywhere in Saugatuck? No. It applies specifically to the city's six R-1 residential zoning districts. Property in other zoning classifications, or across the boundary in Saugatuck Township, follows different rules entirely.
If a listing says it currently operates as a short-term rental, can I assume that continues after I buy it? Not automatically. Licenses are non-transferable. You need to confirm the license status directly rather than relying on the seller's rental history.
Is the cap likely to change again? The council discussed adjustments in February 2026, and it remains the subject of an active legal challenge from a resident group. Treat any summary of the rules, including this one, as a starting point for verification rather than a final answer.
Saugatuck's rental rules are not something a listing description will spell out, and they change often enough that even recent research can be out of date by the time you're under contract. If you're weighing a waterfront or investment purchase along this stretch of the lakeshore, the Andrea Crossman Group can walk the district lines, license status, and jurisdiction with you before you make an offer, not after. Discover lakeshore living with someone who already knows which side of the line your listing sits on.
This article is general information, not legal, tax or financial advice. Consult a qualified professional about your situation.
