Tenants Using our SFH as a Hostel

[Vi Huang]

I just fired my previous property manager and during the transition to a new property manager, we just learned that our tenants have been using our home as a hostel. One of the tenants is a manager at a restaurant and lets his employees stay at our home. They have 7-8 adults in our home every night. We have given them a 60 day notice to vacate but the tenant asked us to reconsider b/c the location of the home is convenient. They've significantly worn out the carpet so we'll need to replace all the flooring in the house. They also don't use the vent when they shower so the lights in the bathroom are rusted and the place is filthy. Because we'll need to redo the backyard and have significant repair inside before we find new tenants, I'm considering letting them stay if we can increase the security deposit significantly and charge a higher rent to offset the accelerated wear and tear on the home. This will help delay the all the repair costs. Is this a bad business decision? I am concerned with potential squatters and CA law isn't landlord friendly. Just trying to figure out if there's any benefit or risk we should consider if we let them stay assuming we can charge higher rents.