So I will come at this from a different angle than the previous responses.
Rental arbitrage makes sense for landlords in some asset classes and not others. If you are a mom-and-pop landlord with 1-2 single-family investment properties in popular markets, there's no point leasing to a rental arbitrage company at a fixed rental rate. If you are a multi-family developer that builds 300-unit complexes all over the country, there are massive benefits in working with carefully vetted and professional rental arbitrage companies. A mom-and-pop real investor has the time to learn and run an STR hospitality business, a massive multi-family developer doesn't and it's not even part of their core competencies, not to mention a hospital business at that scale requires a sophisticated tech stack and manpower.
In terms of the other arguments about horror stories and party crash pads, this is just a matter of bad vendor vetting and selection and the general nature of the STR industry. Bad LTR PMs will run your investments into the ground, just like bad STR operators and managers will run your investments into the ground. As someone who has been in the STR industry for quite a bit now, you would be surprised at how horribly most "professional, established, local compan[ies]" manage their STR portfolios. Large companies like Vacasa, Turnkey, or Evolve aren't any better, either. In fact, my experience with their properties is that they are managed just as terribly as the smaller companies, as those companies implement portfolio-wide pricing strategies and don't really care about optimizing RevPAN and occupancy at the individual property level and don't really care about vetting guests and proactively avoiding anything.
Just because they are established doesn't mean they have the systems, technologies, and strategies in place to proactively vet guests and deter bad guests from booking in the first place. There is always a risk of hosting bad guests in the STR world, especially if your properties are on the lower end of the rate spectrum. Even at the upscale end of the spectrum, a $1,000/night mansion that can host 20 people is only $50/night/person, something a bunch of wild college kids on spring break can easily afford once a year.
My advice to the OP would be to first vet this company (and any PM company honestly) and see exactly how and what they use to proactively prevent issues from occurring, and what their approach is if an issue actually occurred. Dig deep into the $1 million coverage they are referring to, as Airbnb's coverage is also $1 million and that's not considered insurance. You want to make sure that rental arbitrage companies use insurance coverages that specifically cover rental arbitrage arrangements, which at this time according to my knowledge is only offered by Proper (www.proper.insure). If a company don't use noise monitors, security cameras, and smart locks to actively manage guest codes, don't even bother with them (don't ask them if they use these, just ask them what's their method for preventing and addressing bad guests and party situations). Lastly, propose a profit-share/management model instead of leasing to them at long-term lease rates. As the previous people mentioned, there's really no reason why in your situation you should give up the benefit of STR cash flow and have your home be a STR.
There is so much more that I would recommend you ask these companies to really see if they are seasoned operators or just a bunch of kids trying to get rich quick. Honoestly, this kind of vetting should be done with any management company, not just STR operators, albeit the questions you ask will be drastically different.
Running a STR/hospitality business and preventing problems by yourself is not as easy as some people make it out to be, especially if you run it at scale. If you don't like hospitality and heavy operations management, and can't deal with Airbnb's dictatorial way of managing bookings, you will get burned really quick, especially if you don't have the higher-end properties that don't really get booked by people looking to party.
Hope this helps!
