Vacation rentals are vulnerable to rule-breaking and accidents that can compromise your profit margins, homeowner relationships, and even jeopardize your business. Short-term rental security deposits help mitigate those risks, but you need to know what amount to set, how to manage the payment process, and how to communicate with guests.
Any errors in your processes or calculations could lead to a drop in occupancy rates and bad reviews.
This article addresses these very concerns. You’ll learn:
Vacation rental security deposits act as a financial guarantee for damages caused by guests during their stay. Provided there are no issues, you’ll normally refund this upfront payment* shortly after check-out, once the property has been inspected or the turnover completed.
However, if there are damages, you can retain some or all of the deposit to cover the costs of repair or replacement. Not all kinds of damages are covered by security deposits, though.
For example, minor breakages (like a broken dish or glass) inevitably occur from time to time and general wear and tear is unavoidable (think scuff marks, small stains, and scratches), so these costs are normally factored into your nightly rates and/or insurance policy.
On the other hand, more serious damage, like damaged furniture, a broken wall mirror, or a broken electrical appliance, could be reason enough for you to retain the security deposit.
Knowing when or when not to withhold a security deposit can be a difficult choice—was the accident caused by carelessness or was it the kind of incident that could happen to anyone? Is the damage done serious enough to warrant potentially upsetting a guest?
This can be a fine balancing act as you seek to protect your business’s profit margins while also providing a positive guest experience. Below we look at how the major booking platforms manage the security deposit process.
*Note that in practice, some security deposits—like ones that use credit card preauthorization—do not require an upfront payment, and are therefore technically not deposits.
There are different ways to manage deposits, refunds, and claims depending on who your booking is through. Below, you’ll see the key information you need to know for the three biggest booking platforms: Airbnb, Booking.com, and Vrbo.
Airbnb itself does not manage security deposits. If a stay results in damage to the property or its contents, you can make a request for reimbursement within 14 days of check-out using Airbnb’s Resolution Center.
In this scenario, you might have to provide some supporting evidence for your claim, such as photos of the damage with a historical log of smoking or excessive noise and occupancy, which you can do using Minut.
However, you can apply a security deposit to your Airbnb bookings via specialized API-connected software like Autohost and Superhog.
Unlike Airbnb, Booking.com allows you to manage security deposits directly with guests on your own terms.
As the platform itself explains, “You define how and when you collect this amount and manage the money yourself. You must collect and return the amount per the settings you defined at the time of booking.”
Alternatively, you can use Booking.com’s damage program, which allows the platform to facilitate the damage payment and manage the guest communications at no cost.
Similar to Booking.com’s damage program, Vrbo manages security deposits for you based on your customized settings:
“You can set a damage deposit amount that your guest will be responsible for if they cause damage to your property. You'll have up to 14 days after a guest checks out to file a claim. We’ll charge this amount on your behalf to the traveler’s credit card used for the booking.”
Damage deposits can have a significant impact on your operations and guest relationships, so before you implement a process for managing them (we describe different methods below), you should be clear on their benefits and drawbacks.
Setting the right security deposit is a question of finding the sweet spot that protects your property without scaring away potential guests. Here we look at the two main points of consideration: The nature of your property in relation to the local market and the different price-setting methods.
The size, value, and amenities of your properties play a big role in determining the deposit amount—a cozy tiny home won't need as large a deposit as a sprawling seven-bedroom luxury villa.
However, location is also a factor, as is your local market. If your deposit is much bigger than other similar rental properties that you’re competing with, you could miss out on some bookings.
So, when setting your deposit, research similar STRs in your neighborhood, and see what the typical range is. Your security deposit should be within that range.
Going with a fixed-rate deposit means you're setting a standard amount regardless of how long the guest stays or how much they're paying per night. Especially if you're managing multiple properties or accept single-night stays, having a consistent deposit amount can make the process easier to handle.
For many rentals, a deposit ranging from $250 to $500 is typical. However, as discussed above, it depends on the local market and property type.
For example, five-bedroom short-term rentals in Outer Banks, North Carolina, often require a deposit from $1000 to $2,000. Others don’t take any deposit at all but automatically fine guests for not following the house rules on smoking, cleaning, and trash disposal.
If you opt for a percentage-based deposit, you're tying the deposit amount to the total reservation cost. This is usually somewhere between 10% and 25%.
For example, if you're renting a beach home for $6,000 a week and the security deposit is 15% of the reservation cost, the deposit will come to $900. This method adjusts with the price, making it fairer in some cases but less suitable for mid-term stays of several weeks or months.
When you're managing direct bookings for your vacation rentals, capturing security deposits efficiently and securely is essential. Here are some key considerations, practical approaches you can take for your own business processes, and their benefits and disadvantages.
Start by being explicit and clear about your security deposit policy. Include all the details in your rental agreement, house rules, or listing descriptions. State how much, when it's due, and under what conditions it will be fully or partially refunded. Transparency builds trust and minimizes the chance of a dispute down the line.
Meeting guests in person to collect the security deposit can be a straightforward method, especially for smaller properties or if you live nearby. This approach allows for a personal touch and the opportunity for you to walk through the property together. You can accept cash, a check, or use a mobile payment service on the spot. Just remember to provide a receipt for transparency.
However, there are some drawbacks to collecting deposits in person:
Automated bank transfers save you and the guest from the hassle of in-person collection. Provide details for guests on where they should transfer the deposit to—services like Zelle, or Wise for foreign visitors, are a good option—and complete the online check-in process as soon as a payment is completed.
The one issue is that managing bank transfers adds an extra step to the booking or check-in process for both you and your guest.
Efficient messaging is needed, which you can template, schedule, and automate using STR messaging solutions like Minut’s Guest Connect.
Credit card preauthorization involves placing a hold on a specified amount on the guest's credit card, which isn't charged unless there's a claim for damages.
This is a highly automated process for both parties and ensures funds are available if needed: After the hold period expires, the preauthorized amount is released back into the cardholder's available credit.
Work with your payment processor to set this up, and inform guests about the process and how long the hold will last. Just be aware that, since most holds have a limit of up to 14 days, this wouldn’t normally be a suitable solution for longer stays.
The charge and refund method involves charging the security deposit to the guest's credit card at the time of booking and refunding it after their stay and a property inspection.
This ensures the deposit is collected upfront but requires you to refund it promptly to maintain trust and satisfaction. Be clear about the conditions under which the full amount will be refunded and the timeframe for the refund, which needs to allow for that inspection to take place.
There are various tools and platforms you can use to streamline booking and check-in management with specialized features for handling security deposits. These software solutions connect with your booking platforms and/or property management system (PMS) to automate otherwise potentially complex processes. Here’s a brief overview of some of them:
Security deposits provide some financial protection to your business but they’re not a complete solution and your properties and their contents are still vulnerable to risky behavior.
The damage from an unruly party, smoking, or local ordinances on STR occupancy limits and noise levels being ignored, could far exceed the amount of your security deposit and even risk the revocation of your operating license.
With a standalone sensor for vacation rental protection, you can mitigate those risks. Here’s how it works with Minut:
With Minut’s all-in-one solution to vacation rental property protection, you’ll gain visibility across your entire portfolio, automated processes to manage guest communication, and a record of events when an incident occurs.
If you choose to implement security deposits as part of your booking and check-in process, you need an efficient way to manage collection, returns, and guest messaging.
Without a streamlined way to manage deposits, you could put some guests off from booking with you, add to your administrative burden, and struggle to scale your operations. But, with methods like credit card preauthorization, charge-and-refund payments, and automated guest messaging, you can have an efficient process that doesn’t increase your manual workload.
It’s important, though, to be clear and transparent about whatever process you do implement, as well as your policy on when a deposit should be partially or fully retained.
To further protect your business, you should consider an all-in-one noise monitoring solution like Minut that automates alerts and guest messaging. With this in place:
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