The second option is to sell and house-hack a fourplex, which offers more units, higher potential cash flow, leverage equity, and appreciation potential.

Find the potential quite appealing.

Your listing title is the first thing potential guests see, so it's got to stand out.

Additionally, there’s always a risk that any pet-related damages could be hidden under furniture or otherwise concealed, potentially leaving us to cover the costs if the security deposit is fully depleted by other expenses (e.g., damages or unpaid rent).

Maybe that's not "illegal" but it is potentially actionable.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

2.What are the best and most cost-effective solutions for managing this potential long-term issue?

On the positive side, it seems like you have a good potential BRRRR that you can use to purchase additional properties.

I'm hesitant to set a utility cap, as I worry that disclosing a specific amount (like $500) could deter potential tenants.

As someone based in San Diego, I’ve also noticed that investors eyeing California real estate tend to focus on potential future development or expansion (especially if you have the patience to navigate local regs).