Folly Beach implemented a short-term rental cap and a structured license system that fundamentally shapes the investment property market on the island. Understanding the rules before buying is not optional — getting this wrong can cost you the ability to rent your property at all.

Here's the complete breakdown of how Folly Beach's short-term rental system works.

Why Folly Beach Implemented the Cap

The proliferation of short-term rentals on barrier islands across the country has created a consistent pattern: housing stock shifts from long-term residential to vacation rental use, permanent residents are priced out, community character changes, and the year-round tax base erodes.

Folly Beach's city government saw this pattern developing and implemented a cap on the total number of investment short-term rental licenses to preserve some portion of the island for permanent residential use. The cap is set at approximately 800 investment STR licenses — a number designed to allow meaningful STR activity while preventing the full conversion of the island's housing stock to vacation rental use.

The cap has achieved some of its intended effects. Long-term rental inventory remains constrained, and the investment STR market operates within defined limits. It has also created a secondary market effect: investment STR licenses on Folly Beach have value beyond the property itself, because their total number is capped.

The Three License Types

Folly Beach's short-term rental system uses three distinct license categories. Understanding which one applies to your situation is essential before purchasing.

Investment STR License (ISTR) The most valuable and most regulated license type. Investment STR licenses are issued to properties where the owner does not occupy the home as a primary residence. These are the licenses that are capped — when the cap is reached, no new ISTR licenses are issued until an existing one lapses or is revoked.

An investment STR license transfers with the property when it's sold, provided the sale occurs before the license lapses and the new owner meets the requirements. This transferability is what creates the license's value — a Folly Beach property with an active ISTR is worth meaningfully more than an identical property without one.

Owner-Occupied STR License (OSTR) For property owners who use the home as their primary residence and rent it on a short-term basis. Owner-occupied licenses are not subject to the investment cap — there is no ceiling on the total number of OSTR licenses that can be issued.

The tradeoff is that OSTR properties must be the owner's primary residence. You can't use an OSTR license for a vacation home or investment property you don't actually live in.

Long-Term Rental (LTR) Not a short-term rental license at all — this designation covers rentals of 30 days or more. LTR properties are not subject to the STR cap and face fewer regulatory requirements than short-term rentals. The LTR market on Folly Beach is smaller but has grown as some property owners opt out of the STR system.

The Practical Implications for Buyers

If you want to buy an investment property and rent it short-term: You need a property that already has an active ISTR license, or you need to acquire one through the city's process — which may not be possible if the cap is currently at capacity. Verify ISTR license status before making an offer. A property without an ISTR license in a capped market may not be able to obtain one.

Ask the listing agent: What is the current license status? Is it an Investment STR, OSTR, or LTR? Is the license current and in good standing? Can it transfer to a new buyer?

If you want to buy and live there full-time with occasional short-term rentals: An OSTR license is your path. These are not capped and are more accessible to obtain. The restriction is that you must actually live there — this is verified and enforced.

If you want to buy as a second home or vacation property without STR income: No license needed. The rules apply to rental activity, not ownership. You can buy, use, and enjoy the property without any STR license as long as you're not renting it to paying guests.

Regulations That Apply to All STR Licenses

Regardless of license type, all short-term rentals on Folly Beach operate under city regulations that include:

Occupancy limits: Maximum occupancy is calculated based on the number of bedrooms. Exceeding posted occupancy limits is a violation.

Noise and nuisance rules: Standard city ordinances apply. Complaints about STR guests generate investigations and repeated violations can result in license suspension or revocation.

Parking requirements: Guest vehicles must comply with the same parking rules that apply to all vehicles on Folly Beach — all four tires off the pavement on side streets.

Registration and inspection: Licensed STR properties are subject to city inspection requirements.

Local contact requirement: STRs must have a local contact available 24 hours a day who can respond to problems. For out-of-area owners, this typically means using a local property management company.

Property Management

Most investment STR owners on Folly Beach who don't live locally use a property management company to handle bookings, guest communication, cleaning, maintenance coordination, and local contact requirements. Dunes Properties is the primary local property management company on the island with the deepest inventory knowledge.

The property management fee typically runs 20-30% of gross rental revenue. Factor this into any cash flow projections before purchasing.

What the STR Cap Means for Property Values

The cap has two effects on Folly Beach property values that work in opposite directions.

Properties with active ISTR licenses trade at a premium over comparable properties without them. The license itself has become a component of property value — a scarce commodity in a capped market.

Properties without ISTR licenses face a limitation that reduces their investment appeal. A buyer who wants to use a Folly Beach property as a vacation rental but can't obtain an ISTR license has limited options — OSTR if they're willing to make it their primary residence, or LTR for longer-term tenants.

For buyers who want investment STR capability, verifying the license status before any offer is the single most important due diligence step specific to Folly Beach.

For more context on the Folly Beach real estate market, see our guide to living on Folly Beach and our moving to Folly Beach guide for the full picture of what owning and living on the island looks like.