How to Buy a Short-Term Rental in Michigan and Save on Your W-2 or Active Income Taxes

By Jeff Roth

Why Michigan is a solid market, how to work within the current rules, how your income taxes can be reduced, how to evaluate properties for profitability, how to buy a property well, and how to manage it well for success.

Disclaimer- No part of this was written by a third party or a robot. Every effort was made to make the information current at the time of writing. Verify all information and talk to your investment advisors before making a purchase decision.

Why Michigan is a Solid Short-Term Rental Market

Michigan is a solid choice to own a short-term rentals (STRs) because there is demand from both in-state and out-of-state travelers. It has abundant natural resources surrounded by the Great Lakes and numerous inland lakes, four seasons for outdoor and hunting/fishing activity, and world class destinations like Mackinaw Island, state and federal parks, city of Detroit, and the coastal towns and college towns.

A recent article in MLive reports that 131 million tourists came to Michigan creating $54.8 billion in economic impact spending $30.7 billion on destinations in 2024 up 4.9% from $29.3 billion in 2023.

Michigan has 3,288 linear miles of coastline which is the nations longest freshwater coastline. The coastline has miles of sandy beaches, dunes, rocky cliffs, and bluffs.

Mackinac Island is located by the Mackinac Bridge which connects the upper and lower peninsulas of Michigan and is accessible by ferries. First settled by French explorers in the 1600s, the island retains its 18th and 19th century atmosphere with automobiles not allowed and travel done by horse and buggies. Notable destinations are the restored, historic Fort Mackinac and the Grand Hotel with panoramic views of the island.

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Michigan has 103 state parks with modern to rustic camping and a variety of on-site amenities and 6 national parks managed by the National Park Service.

There are miles of hiking and biking trails, snowmobile and off-road trails, and ski hills and resorts with something to do in every season.

Detroit is the largest city in Michigan and home to nationally recognized sports teams, redevelopment activity, a vibrant downtown scene, and a large economic driver for the state.

Clearly, there is a lot to like about owning a short-term rental in Michigan with the diversity of destinations and activities through the year.

How to Work Within the Current Short-Term Rental Rules in Michigan and Evaluate Different Markets

Currently, Michigan does not have a statewide policy for short-term rentals other than charging a 6% use tax on stays.

When working with investors from around the country and in-state, we partner with a statewide short-term rental property manager that manages properties in the communities our investors or looking to buy and they help us understand the demand for STRs there, if the market is saturated with other STRs, the average daily rate (ADR), the average occupancy and yearly revenue we can expect from the property, what could be done to improve the ADR and property value, and the directions of regulation in that specific community. Our STR property manager understands that some investors prefer to self-manage or decide to have them do some of the management responsibilities so they offer a menu of services at different price points from limited to full service.

If the performance data from our STR property manager partner comes back strong, we confirm that STRs are allowed with the local government, neighborhood, and any potential neighborhood or condo association.

We make sure up-front you are investing in a high demand, high revenue, an STR allowed area.

How You Can Reduce Your Income Taxes from Owning Short-Term Rentals in Michigan?

Investment real estate has its traditional advantages of providing cashflow and tax advantaged depreciation.

Short-term rentals provide and additional advantage if the owner materially participates with enough hours each year managing the property as the IRS then treats it as an active investment. This allows the owner to reduce their W-2 or active income with the depreciation from the property.

There are ways to accelerate the depreciation even more with things like bonus depreciation, which is currently a tax thing, for things like carpet, furniture, and hot tubs which short-term rentals are typically loaded with.

Additionally, an owner can do a cost segregation study where all the things that can be depreciated faster can be pulled forward creating a big income tax reduction for your W-2 and active income.

Please consult your tax advisor for specific details or we can refer you to a knowledgable tax advisor.

How to Evaluate Short-Term Rental Properties for Profitability in Michigan

You can use online tools like AirDNA and Rabbu to research specific markets and profitability of individual short-term rental properties. Our statewide STR property manager partner will give you on the ground performance feedback and their personal experience in the area

In general, having a property on water is better than not being on some type of water. Having a larger property with more bedrooms and common living spaces is better than having a smaller property as extended families like to vacation together in the same house. Having quality furniture and finishings is better as it will attract clients willing to pay a higher premium for that experience.

Also, pools and hot tubs do add to ADR and occupancy numbers.

You will also want to look for attractions nearby like walking distance to a downtown, parks, shopping, pubic transportation, festivals, and all season resources like hiking/biking/snowmobile/and ski hills—especially if not on water.

College towns and city centers also do well and should be considered.

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How to Buy a Short-Term Property Well in Michigan

In short, you want to find a property that will make a profitable short-term rental and not overpay.

To do that, here are the steps we usually take when helping our clients buy well in Michigan.

Step 1- Decide on your buying criteria. Location. Size. Budget.

Step 2- After finding a property that matches the buying criteria, we verify it is allowed to be a short-term rental. This means emailing the city or township with the address and verifying the property is either already a STR and you can continue to use it that way as the new owner or it is eligible to be used as a STR if you follow the process. This way you have your verification in writing and any details you need to follow up on.

Step 3- Is the property priced well? This is confirmed by looking at recent sold comparable for similar properties. The property should be priced at or below market value. Starting too high does not help the buyer, buy well.

Step 4- Determine offer price and make an offer. In general, even if the property is “perfect” we don’t recommend making a full price offer. Again, we want our buyers to buy well. An initial offer price will be determined by looking at the researched fair market value and making a reasonable offer verbally. This feels out the motivation of the seller. If there is no seller motivation, a good deal is not likely to be found. Many times, the verbal offer is accepted or countered slightly and the written offer can be made. If a property goes multiple offers, we do not recommend our clients engage as someone will overpay and make an emotional decision. When writing the offer, we like to protect our buyers as much as possible with the following terms and conditions. Earnest money deposit due after satisfactory inspection so their money is not tied up any longer than necessary. 5 day attorney review contingency even if it is not exercised. 10 day inspection window. All financials, rental licenses, maintenance records, and evidence of clear title provided during inspection window. 45 day close for non-cash deals. Furniture included, if already a short-term rental, without paying additional for it.

Step 5- After acceptance, it’s time to inspect. Besides making a good initial offer, having a thorough inspection is critical to buy well. In addition to a general property inspection you want to have the main sewer line inspected with a camera as this is an expensive repair if not draining properly or damaged. If the property is on a well and septic, you will want to have those inspected and the septic tanks cleaned and typically you can ask the seller to pay for this in the purchase agreement to show the systems are safe and working properly. Sometimes a foundation, mechanical, roofing, or environmental contractor will need to also be called in for the inspection. During inspection, verify financials, maintenance records, and clear title. After inspection, if there are issues found and usually there is something, we can ask for a price reduction or repairs to be made.

Step 6- Financing. If you have cash, this allows you to make a more aggressive offer. Short of cash, having an experienced lender is the next best thing. For example, there are investor loans that use the income of the property to qualify the mortgage with very little needed from the buyer besides a decent credit score and the downpayment. This saves a ton of time and hassle gathering documents for a traditional or conventional mortgage. An added benefit is you can usually get as many of these loans as you want; whereas, the number of conventional mortgages is capped at 10 until you pay one off.

Step 7- Closing. As you prepare to close, make sure you have your property manager or systems in place to begin operating the property and accepting guests as soon as possible. You will want to transfer all utilities, including internet, to the new owner’s or property manager’s name. Make sure you do a final walkthrough and verify that all the furniture and household goods stayed as agreed and the property is in the same condition as when you first saw it. Review closing statements and make sure all fees and expenses look correct

This is how we ensure our clients buy well in Michigan.

How to Manage a Short-Term Rental Property in Michigan

As you know, the key to a profitable short-term rental, besides picking a profitable property, is running it well and having good systems to provide an exceptional stay experience for your guests and collect solid reviews to attract more stays.

It is possible to have a reliable local handy-person and cleaner, and use the platforms to run your business especially if you have hospitality experience or own other short-term rentals.

However, if you don’t enjoy the customer service aspect of the business or answering the same questions cheerfully, you may want to engage a property manager to handle the parts of the business you know are important but you just don’t enjoy.

It is critical your guests have an exceptional stay experience with responsive communication and quick response to issues being handled professionally with systems in place to do that.

Just like with any other businesses, it is effective management where the money is made.

Bottom Line For Buying Short-Term Rentals in Michigan

Michigan is a solid short-term rental market and the revenue generated from tourism has only been increasing and you can reduce your W-2 or active income taxes by owning them.

It is surrounded and filled with lakes and waterways with abundant natural resources with activities and destinations for all four seasons.

Even fall in Michigan is an event with all the color changes in the trees.

Michigan is home to many world class destinations, sports teams, cities, and state and federal parks.

Owning and operating a short-term rental can reduce your W-2 and active income taxes significantly.

Evaluating the profit potential of a property as a short-term rental is crucial to your success.

Then, buying the property well is also important.

Finally, managing it well and/or using an experienced property manager is key to attracting more guests and solid reviews.

To Your Success!

Jeff Roth

Jeff Roth

Jeff is the founder of Arbor Advising. Arbor Advising is a consultancy based in Ann Arbor, Michigan that is passionate about helping people reach their financial goals with real estate and real estate investing in Michigan with an established record of success in various market conditions. Jeff believes in the value of education and is a contributor to many local and national real estate publications and organizations. Reach out for a confidential consultation to review your specific goals and objectives and join the many satisfied clients that work with Arbor Advising.

You can connect with him at:
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