Anyone Rent to Tenants Who Run a STR? Risks & Advice Needed

[Sam Liu]

I have a short-term rental in Palm Springs, but the market has slowed and we’re losing money. Instead of selling, I’m planning to convert it to a long-term rental. Some inquiries on Zillow are asking to rent it for vacation rental use. Has anyone allowed tenants to operate a STR? I'm worried about extra wear-and-tear and any unexpected issues.

Any advice or experiences would be appreciated. Thanks!

[JD Martin]

Quote from @Sam Liu:

The house is already furnished. How to ensure that this type of tenant will pay rent on time? For normal tenants, I usually ask for their income proof and credit report etc. 

 First off, if you can't run it successfully as a short term rental, what makes you think someone else will be able to do so, with the added baggage of paying you and furnishing the place (assuming you wouldn't just give them your furniture)? 

Beyond that, be warned - most people who want to do this have heard about "arbitrage" strategy from some guru somewhere, have no idea what they are doing, and are likely to leave you without rent and with a damaged and/or worn out house if they can even manage to get anyone in there. As they struggle to come up with the money to pay your LTR, they'll start dropping minimum night stays and letting people use it as a party house, then after a month or two or three when they figure out they're making nothing they'll slink off into the night and you'll have the fun of repairing your house. 

I wouldn't do it, period. You'd have to have something pretty special for an experienced operator to agree to pay your fixed rent and operate it profitably while maintaining good quality tenant stays. There's also a pretty good chance your insurance company is not going to cover any damages done by a third party operator, so you would really need to stay on top of their insurance coverage. 

At the end of the day, it's a lot of risk for very little reward. You would be better off selling if you don't think you can make any money owning it and running it yourself. Because you could simply find a great vacation property manager, and pay them a commission to run the property - so why go with some schmuck that crawls off Zillow?