Short-Term Rental Security Deposits: A Complete Guide

Learn what STR security deposits cover, the pros & cons, how to set the right amount, methods of collection, how OTAs manage them & what tools to use.
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February 28, 2024
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Short-Term Rental Security Deposits: A Complete Guide

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:

  • What is and isn’t covered by security deposits
  • How the big three booking platforms manage them
  • The pros and cons of implementing security deposits
  • How to set the right security deposit amount
  • Different methods of capturing them for direct bookings
  • What software you can use to manage the process for you
  • What tools you should use to reduce the risk of property damage

STR security deposits: What are they & what’s covered?

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.

Broken plate at a vacation rental
Breakages are not normally covered by security deposits and so should be factored elsewhere into your business plan. Source

*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. 

How major online travel agencies (OTAs) handle security 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 security deposits explained

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.

Booking.com security deposits explained

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.

Booking.com’s six-point explanation of how its damage program works
Booking.com’s damage program saves you from having to manage potentially tricky guest communications. Source

 Vrbo security deposits explained

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.”

Pros & cons of security deposits for short-term rentals

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.

Why ask guests for a security deposit

  • Protection
    Security deposits offer a layer of financial protection for your business, saving you from having to tap into other areas of your business funds.
  • Owner confidence
    Showing that you have an established process for security deposits signals your professionalism and can boost trust in your services.
  • Deterrence for bad guests
    Knowing they have money on the line can encourage better behavior in guests.
  • Incentivizes following house rules
    Guests are more likely to follow house rules, for example, your restrictions on extra guests or instructions on the use of certain amenities.
  • Competitive rates
    Since they’re a refundable charge that can reduce your costs, security deposits can indirectly help you maintain low nightly rates.

Why avoid security deposits

  • Booking friction
    Asking for a security deposit adds an extra step to the booking process, which could deter some of your ideal guests. This might affect your occupancy rates as travelers opt for a simpler booking experience elsewhere.
  • Potential conflicts
    Withholding deposits can lead to disputes over what constitutes damage versus normal wear and tear, potentially resulting in bad reviews that harm your brand.
  • Administrative burden
    Without an automated process in place, tracking payments, holding funds, inspecting properties, and processing returns or claims increases your workload.
  • Security deposit limitations
    Having paid the deposit, some guests could think they’re freed from having to respect the property, increasing the risk of costly damage that exceeds the deposit amount.
  • Alternative protection options
    There are other ways to protect your property without requiring a security deposit. These include specialized tools for privacy-safe STR monitoring like Minut and STR insurance like Safely, which can cover damages without you needing to charge guests.
 Guests having a party and smoking at a vacation rental
Security deposits provide some financial protection but they don’t stop all risky behavior or rule-breaking. Source

How to set the right STR security deposit

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.

Understand your properties

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.

Fixed-rate deposits

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.

Percentage-based deposits

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.

How to capture security deposits for direct bookings

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.

Set clear policies

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.

Security deposit terms and conditions
Your rental agreements should clearly state the terms and conditions of your process for security deposit management, like this one by Seaside Vacations in Outer Banks. Source

In-person collection

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: 

  • It’s not scalable across a large, growing portfolio
  • With ATM limits and fees, some guests may struggle to access that amount of cash
  • The guest might not be familiar or comfortable with using a check or making mobile payments

Automated bank transfers

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.

Three mobiles showing Minut’s scheduled messaging for check-in and check-out
Build the security deposit collection process into your automated message flow for check-ins. Source

Credit card preauthorization

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.

Charge and refund

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.

Automated third-party STR software

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:

  • Guest screening tools like Autohost and Superhog use credit card preauthorization and charge-and-refund methods to streamline deposit management, though you’ll need to check to see if there are any fees involved.
  • Guest experience software like Enso Connect creates automated booking and check-in processes that allow guests to be more independent, and can include security deposits and signed agreements.
  • Specialized online security deposit software like Swikly uses credit card preauthorization and automated guest messaging for a fast and simple way to organize your deposits.

Added protection with remote monitoring & automation

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:

  • Noise monitoring: Set customized noise thresholds for day and night. When those thresholds are exceeded, you’ll receive an automated alert, and Minut will automate a message to your guest. Alternatively, you can opt to message the guest yourself.
  • Occupancy monitoring: As with Minut’s noise monitoring solution, set your thresholds for each property. If those thresholds are exceeded, Minut will automate a message to your guests and keep you informed with automated alerts.
  • Cigarette smoke detection: Minut uses AI technology to distinguish cigarette smoke from other kinds of smoke (like burnt food). If the sensor detects a problem, you’ll be immediately alerted and the guest will receive an automated message.
  • Call Assist and Guard Assist: As an alternative to our automated messaging service, Minut has agents trained in conflict resolution to speak with your guests and visit them in person.

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.

Minut STR monitoring dashboard
Minut is a scalable solution to home and STR business protection.

Short-term rental security deposits and home protection

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: 

  • You’ll know as soon as an issue arises,
  • Your guests will be contacted even when you’re unavailable,
  • And you’ll have concrete evidence to support your claims.
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