In 2021, tenants in a 74-unit apartment building called Trailside45 got notice that their homes were being sold out from under them. The new owner, an investment group called Cochran Booth & Co., had bought the property from Alpha Development and Westwind with a plan to convert it floor by floor into condominiums priced up to $300,000. The company framed it as a win for first-time buyers looking for a foothold near downtown. Longtime residents, some of whom had rented there specifically because it was marketed as an affordable place to live, called it something closer to betrayal.
The detail that made planning commissioners uneasy wasn't the price tag. It was the zoning district. Trailside45 sits in the city's C-3 Community Center district, one of several zones where the City of Traverse City places no cap at all on how many units in a building can be rented out short-term. A condo buyer there isn't just purchasing a unit near downtown. They are purchasing a unit in one of the few pockets of the city where nothing currently stops every single condo in the building from becoming a vacation rental.
That is the thing a lot of downtown condo shopping misses. "Downtown" is not one rulebook. It is a patchwork of zoning districts stacked on top of each other, and which one your building sits in determines whether your unit can legally run as an Airbnb at all, and if so, how many of your neighbors can do the same thing.
Two licenses, two very different rentals
Traverse City recognizes two kinds of short-term rentals under its ordinance, and they are not interchangeable.
A Tourist Home is hosted. You live in the unit and are present while guests stay in a room. These are allowed in residential districts across the city.
A Vacation Home Rental is the whole-unit version, the kind most people picture when they think Airbnb. Nobody has to be home. This is treated as a commercial use under city code, requires a Vacation Home Rental License from the City Clerk with a $200 application fee and $200 annual renewal, and is only allowed in specific commercial, mixed-use, and development districts. Most single-family residential zones simply do not permit it.
As of the city's own December 2024 count, there were more than 500 licensed Vacation Home Rentals in Traverse City against fewer than 40 licensed Tourist Homes. The whole-unit version is overwhelmingly the more common path, and it is entirely a function of which zone a property sits in.
What the map actually says today
Here is the district breakdown planning staff laid out for commissioners in their review of the city's vacation rental data:
| Zoning district | Current cap on Vacation Home Rentals per building |
|---|---|
| C-1 (Office Service), C-2 (Neighborhood Center), D-2 (Development), I (Industrial) | 25 percent of units |
| C-3 (Community Center), C-4 (Regional Center), D-1 (Development), D-3 (Development), GTC (Grand Traverse Commons), HR (Hotel Resort), T (Transportation) | No cap, up to 100 percent |
A building in C-1 and a building in C-3 a few blocks apart can look identical from the sidewalk and have completely different ceilings on how much of the unit inventory can operate as vacation rentals. Buyers rarely ask which zone they are standing in. The zoning line, not the street address, is doing the real work.
The cap that isn't a cap yet
Here is where it gets more interesting for anyone underwriting a purchase around future rental income. Traverse City has spent more than a year and a half trying to tighten this exact map, and as of this writing it still has not finished.
Planning commissioners flagged the uncapped districts as a housing concern back in the fall of 2024, worried that unlimited vacation rental conversion in buildings like Trailside45 was pulling year-round housing stock out of the market faster than the city could replace it. By May 2025, the Planning Commission had a specific draft in front of it: cut the D-1 Development district from its current 100 percent allowance down to 25 percent, and introduce a brand-new 35 percent cap in the C-3 district, the same zone that today allows Trailside45 to run without any limit. The Hotel Resort district was left alone at 100 percent, since planning staff considered it purpose-built for hospitality use in the first place.
Commissioner Dituri put the concern plainly during one of the commission's discussions: "We are probably one of few communities that doesn't have a cap in a lot of our districts, and that is scary." Planning Commission Chair David Hassing went further, warning that unchecked vacation rental growth risked leaving the city "hollowed out" of the workers who staff its restaurants and shops. Commissioner Christopher Martin pushed back, arguing that tourism dollars from vacation rentals are part of what keeps those same businesses open and that the city's real problem is a shortage of housing supply, not a surplus of short-term rentals.
That disagreement has stalled the reduction. As of mid-2026, no citywide cap change has actually been codified. The proposal has moved through planning commission review and public hearings, but a final ordinance has not been adopted by the city commission. Which means a unit in C-3 today, unlimited cap and all, is sitting on a rule that the city has been actively trying to change since 2024 and simply hasn't finished changing yet.
That is not a reason to assume the rule will never move. It is a reason to treat today's zoning allowance as a snapshot, not a permanent feature of the property.
The state is pulling in the opposite direction
Local control over this issue has its own political fight layered on top. State legislation backed by Rep. John Roth, a Traverse City Republican, would bar municipalities from requiring licenses or permits for short-term rentals altogether, limiting cities to nuisance-style rules like noise ordinances applied equally to all housing types. The Michigan Realtors Association has supported the push, arguing deregulation helps owners maximize property value. The Michigan Municipal League has opposed it, calling it a state override of local zoning authority.
Several Traverse City planning commissioners reached out to Roth directly to argue against the bill. It has not passed. But it is a live reminder that the rules governing a downtown condo's rental potential are being pulled in two directions at once, tighter at the city level and looser at the state level, and a buyer closing today is stepping into that tug of war rather than a settled outcome.
What this means if you're comparing condos downtown
If a listing's appeal rests partly on its rental income potential, the zoning district is the first thing to confirm, not the last. A few concrete steps:
- Ask which zoning district the parcel sits in before you assume anything about vacation rental eligibility. C-1 and C-2 buildings cap at 25 percent today. C-3, C-4, D-1, D-3, and HR buildings currently have no cap, though C-3 and D-1 are the two districts most likely to see that change.
- Confirm whether the building already holds a Vacation Home Rental License and how many units in that building are currently licensed against the applicable cap, since caps apply per building, not per unit.
- Pull the condo association's declaration and bylaws. Michigan's Supreme Court affirmed in 2025 that an HOA can prohibit short-term rentals through its own covenants even in a zoning district where the city allows them. A building's private rules can be stricter than the city's, and they can change after you buy.
- Treat any zoning allowance as current, not permanent. The city has been actively working to reduce caps in several districts since 2024. What's legal on your closing date is not guaranteed to stay that way through your ownership.
Between 2018 and 2021, the city issued permits for 572 new multi-family units, and 172 of them, just over 30 percent, became licensed short-term rentals. That conversion rate is exactly why the districts without caps have drawn the planning commission's attention, and exactly why a buyer weighing rental income against a downtown condo price tag is making a bet on a rule that the city itself considers unfinished business.
FAQ
Does an existing Vacation Home Rental license protect a unit if the city lowers the cap later? The city has not finalized new caps, so there is no adopted grandfathering language to point to yet. Any buyer relying on a license issued under today's rules should confirm current status with the City Clerk before closing rather than assuming permanence.
Is a Tourist Home license the same as a Vacation Home Rental license? No. A Tourist Home requires the owner to be present while renting a room and is allowed in residential districts. A Vacation Home Rental is a whole-unit rental treated as a commercial use, and it is restricted to specific commercial, mixed-use, and development districts.
Can a condo association block short-term rentals even if the zoning district allows them? Yes. A 2025 Michigan Supreme Court decision confirmed that HOAs and condo associations can prohibit short-term rentals through their own bylaws regardless of what the underlying zoning permits.
If you are weighing a downtown condo with rental income in mind, the zoning district and the building's own governing documents matter as much as the price per square foot. Nan Ray works through those specifics with buyers before an offer goes in, not after. Schedule your free consultation to walk through a specific building's zoning district, license status, and HOA rules before you commit to a number that the city itself is still deciding on.
