These will give you a clear picture of the property's current performance and potential.

Find the potential quite appealing.

That's why there's a lot of appreciation potential here and cashflow.

This cushions potential value drops.Syndicator vetting: Only partner with syndicators who have a strong track record in different market conditions.Market and asset class knowledge: Understand market cycles and the specific real estate types (multifamily, industrial, etc.) you're investing in.Avoid chasing trends: Just because a market or asset is “hot” doesn’t mean it’s solid.You’re right that this approach doesn’t cap your upside, quality diversification can still generate huge returns while managing risk.Best regards,Drago

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).

I agree with everything said in this post, it is a hospitality business and superlative customer service is a must. 

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

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

If so, do you have any paperwork that supports the vesting to be able to show a potential lender? 

Additionally, have a clear budget, factoring in potential repair costs, and ensure you understand the rules about earnest money deposits and closing deadlines.LLC for Real Estate Investing: Forming an LLC for rental properties can offer liability protection and may provide tax advantages, though the tax benefits are non-existence for rentals.