Is a grandfathered STR in a ban city worth the premium? (Plano example)

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Is a grandfathered STR in a ban city worth the premium? (Plano example)

Max Lake
Investor · CA · Member since 2026 · 1 post · 0 votes

Plano banned new short-term rentals in single-family neighborhoods but grandfathered those operating as of May 15, 2023. Texas SB 929 backs that up: cities have to let the existing use continue or compensate the owner.

I ran one currently for sale: a 3/3 pool home at $449,900. At a $295 ADR and 62% occupancy (about $66.8K gross), it comes out to roughly +$3K/yr and 3.3% cash-on-cash with a manager, or about 18% self-managed. Assumptions are 20% down, 6.5%, and Texas taxes plus insurance near 3.7% of price combined, which is the killer.

On yield alone that's thin. But nobody can build a competing STR on that street.

For those who've bought into capped or ban markets: how much premium did you pay for the legal status, and has it held up at resale? And has anyone had grandfathered status fail to transfer at closing?

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  • Matthew Tregoning
    Property Manager · Melbourne, FL · Member since 2019 · 263 posts · 125 votes
    1w

    Is the $66.8k based on the seller's actual bookings or a projection? I'd be curious how much business comes from repeat guests and the owner's own contacts. Also what comes with the sale besides the furniture: future reservations, photos, cleaner, that stuff.

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  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    1w

    I think it could be worth a premium if you can prove a better margin.

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  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    1w

    The STR permit is a part of the asset. As long as it conveys, there is a premium for it.

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  • Kamila Kowalska
    Specialist · Tampa FL · Member since 2026 · 20 posts · 11 votes
    1w

    Max, great breakdown. One thing I'd add to the premium question: the 3.3% managed (and 18% self-managed) return is pre-tax, and for an STR the permit can be worth more on the tax side than it looks on the P&L. I work in cost segregation, so this is the part I always notice.

    With average stays of 7 days or less and material participation (much easier if you self-manage), a cost seg study on a $450K property can create a sizable first-year deduction that can offset W-2 income, which changes the after-tax return a lot.

    The flip side: if the permit ever failed to convey and you had to switch to 30+ day stays, those losses would generally become passive. So part of what the premium buys is keeping that option open.

    Worth running the after-tax numbers both ways with your CPA before deciding what the permit is worth to you. Do you know if the permit is tied to the property or to the current owner?

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  • Ray WilliamsBusiness Member
    Lender · Denver, CO · Member since 2017 · 159 posts · 72 votes
    1w

    Max, nice work running real numbers on this. I'm a mortgage broker and own two top performing STRs, so I'll take the financing side of your transfer question, because that's where grandfathered deals tend to surprise people. My last acquisition was well above appraised value. But I acquired without a mortgage, although did use an appraisal for my own research. The market had changing regulations, so timing mattered. Since buying 2 years ago I am well ahead of my 5Y Pro-Forma with room to run as I continue my value add approach.

    Before you pay for the premium, run the deal a second way: at long-term rent. If the status doesn't carry over, or the city tightens the rules later, that's your floor. On your numbers, principal and interest on about $360K at 6.5% is roughly $2,275 a month, and taxes plus insurance at 3.7% add about $1,390. You're near $3,660 before any HOA. If a 3/3 pool home in that part of Plano rents long-term for well under that, the premium is really a bet on the permit.

    The same question drives the loan. On a DSCR loan the lender has to pick which income to use. Some use the seller's trailing 12 months of Airbnb or VRBO payouts, some use the appraiser's short-term rent analysis, and some only use long-term market rent. On $66.8K gross the ratio is about 1.5, closer to 1.2 if the lender haircuts it 20%, and possibly under 1.0 at long-term rent. Ask early which method they use, since it can change your rate, your down payment (some programs want 25% on an STR), or whether the loan works at all.

    On transfer, get the actual payout statements, not a projection, and get the city's answer in writing on whether the registration follows the property or the owner before your option period ends. Don't assume the appraisal or the title policy protects the permit for you.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    6d

    Max, I think the interesting question here is less "what premium should a grandfathered STR get?" and more how much of that premium is actually supported by the property's economics and how durable the STR status is for the next owner.

    The legal STR status can certainly have economic value in a market where new STRs face restrictions, but I'd want to verify exactly what the property is entitled to do before putting a premium on it. Plano's current code has specific provisions around STRs that were operating before May 15, 2023, and the registration process matters as well. I'd want the city's determination and the property's registration history documented rather than relying on the seller's description.

    I'd also be careful with the SB 929 reference. The law deals more broadly with nonconforming uses and municipal zoning changes; it isn't simply a statewide rule saying every grandfathered STR can operate indefinitely.

    From the investment side, I'd compare the property against what the same house would be worth as a conventional rental. That gives you a better idea of what you're actually paying for the STR rights. If the STR premium is large, I'd want enough additional net income to justify the regulatory and operational risk.

    And I’d definitely have the transferability question answered before closing, not after. That could be a major part of the property's value.

    Feel free to DM me, I'd be happy to send over our Turn Key Rental Analyzer so you can compare the STR economics against a traditional rental and see how much premium the numbers can actually support.

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  • Akash Kakumani
    Member since 2020 · 13 posts · 2 votes
    4d

    Sometimes I think we simply don't want to buy something overpriced - but a better lens to look at it is "will this make me enough money that I'm happy doing this vs. something else". So at the end of the day I'd like to know the answers to the following: how did you calculate the ADR & Occupancy? Are those the seller's reported STR financials? Does the STR have additional past that?

    That being said - one "pro" to keep in mind is that buying in a regulated area with a grandfathered permit is obviously great due to typically growing demand and flat supply. I'd look into what the demand looks like YoY because if supply stays flat, then the growth % can partially land in your revenue % YoY. Doing something like this will help you analyze when you can roughly break even with the "premium" so-to-speak.

    I've been analyzing several deals & building software to analyze STR potential (not simply current revenue) - so if you wanted help analyzing this deal - I'm happy to dig in! Shoot a DM if you'd like to chat more :)

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    3d

    So assuming zero closing costs, they can make $3k/yr on $110k if everything works perfectly and there are no repairs, no capex, law changes regarding the grandfathering, or increased costs? Or they could put it in the bank and make a guaranteed $4,400?

    Try not to fight city hall. I can certainly imagine the $1,000 str permit fee, the quarterly inspections, the str tax, and the fees and fines suddenly showing up if the STRs don’t go away on their own.  Especially as there will be fewer and fewer people to complain every year. 

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