Regardless, the person with the umbrella policy has no big concern and should not lose a wink of sleep.  

Okay, four examples from the past three months of homes/condos me or clients have purchased that are in zones where vacation rentals are legal:  Unit 1:  2 bed/1 bath purchased for $225k, currently finishing up construction to update and make it a 3/2 bath that will sleep 8-10 people. 

Why are you losing sleep?

Someone might bail on a HML secured by a vacant flip gone south, but they are less likely to bail when it's the home the investor's kids sleep in at night. 

I will probably get some blowback on this, but being debt free and having a portfolio I can manage myself allows me to sleep very well at night.

Money doesn't sleep, which makes it a great employee :).

3) How do you sleep at night?

Of course it's just like life to have my sinuses act up the day I post this, so I might be without a voice for a bit... but I'm headed to bed and hoping that a good sleep will help.Thanks again!

Biggest thing is to make sure there is egress out of the basement sleeping area. 

Finally- you can eliminate 95% of the troubles and risk by simply having professional and legal screening and management processes, so don't sleep on that piece.