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Many vacation rental owners spend considerable time debating whether a security deposit or damage protection is the most suitable option for their business.

Do you currently ask your guests to pay a damage deposit for your vacation rental? Or do you prefer to forgo this precaution and simply trust that they will be honest and won’t cause any problems or damages to your property?

In the case of the latter, it might be worth considering changing your mind. There are actually many advantages to collecting a damage deposit from guests who visit your vacation rental.

Not only can you decide the amount to charge depending on your property’s specifics and house rules, it can also help guests to feel a greater sense of responsibility for your home during their stay.


There are, however, some best practice tips you can follow when collecting, handling and returning damage deposits. Read on to find out our top dos and don’ts for rental damage deposits!

What to do regarding rental damage deposits:

What to do regarding your vacation rental damage deposit.

1. Set very clear house rules in your rental agreement

Damage control starts with a set of detailed house rules for your vacation rental which clearly tell your guests how to conduct themselves at your property and what is prohibited.

In your rental agreement, it’s important to include all your specific house rules and any violations which would result in full or partial loss of the damage deposit.

Additionally, you should also reiterate the conditions of the damage deposit once again. Why are you charging the damage deposit payment in the first place? Which damages would result in guests losing their right to a refund? When and how will you return the damage deposit?

In this case, the more details you can provide, the better. It will help reduce the possibility of violations from the guest’s side and also let them know in which state they’re expected to leave your property at the end of their stay.

2. Use your weekly rates and amenities to calculate the deposit amount

There are generally two ways you can go about setting the amount of your damage deposit.

It is standard practice for many property owners to use a set amount (such as $250) for the vacation rental damage deposit. This figure always remains the same, regardless of the length of the guest’s stay. It’s also often fixed in accordance with the value and quality of the vacation rental’s amenities.

Others, on the other hand, choose a percentage (i.e. 10% of the rental price total) to calculate the appropriate deposit amount.

As the latter option always changes depending on the booking period and the length of the stay, it can be difficult to decide. As a general rule, if the percentage works out higher, this is the amount you should think about charging your guests.

3. Review deadlines and restrictions of your damage deposit payment method

Of course, you could accept the damage deposit in cash upon each of your guests’ arrivals. However, this option is quite impractical for those who aren’t personally welcoming their guests or those who have automated the check-in process.

On top of that, you will likely avoid some awkward situations if your guests simply pay the damage deposit immediately with their booking. 

If you decide that you don’t want to accept the security deposit amount in cash on arrival, it’s likely you will either use the charge and refund method, or pre-authorization. Whichever you choose, make sure you are familiar with the costs and complications that may be involved.

For example, using charge and refund may mean that you incur two transaction fees. Whereas when using pre-authorization methods, there may be time restrictions in place.

4. Process the damage deposit immediately

Whichever method you choose, always remember to carefully list the damage deposit payment in the booking invoice for your vacation rental as well.

This ensures that the payment process is accurately documented which is especially vital in case of cash payments. 

Otherwise, it’s essential you cash the check or charge the credit card as soon as possible. This helps to eliminate the possibility of a bounced check or incorrect bank card details and gives you a chance to ask them to confirm their information again.

5. Develop a good relationship with housekeeping staff

In some cases, guests may not feel the need to report accidental damages that occur at your property or downplay their extent.

That’s why building a good, close relationship with anybody who takes care of the cleaning and maintenance of your home is key. After all, they are your on-site eyes and ears and, most probably, the first people to set foot into your property after the guests’ departure.

They can do a quick inventory after each guest’s departure and ensure that any visitor damage or accidental breakage is noted and dealt with in a timely manner.

6. Be conscious of existing damages (and make up for them!)

Of course, accidents can always happen. Your property may have already incurred damages which you are unable to repair before the next set of guests check in.

In that case, honesty is the best policy. Inform them about what happened prior to their arrival and offer them a goodwill token as compensation.

Whether that’s a bottle of wine, a fridge full of groceries or a meal in your favorite local restaurant, be sure to keep the receipts and take it out of the previous guests’ damage deposit amount.

In order to carry out this kind of gesture, it must be written into your rental agreement and signed by both parties accordingly.

7. Give your guests a window for paying the damage deposit

Grant your guests the time they need to pay for the security deposit. If they do so by check, three to five business days should be long enough for you to receive the payment and process it.

However, those paying by credit card should only need 24-48 hours to make their transfer and for it to go through.

What not to do regarding rental damage deposits:

What not to do regarding your vacation rental damage deposit.

1. Forget to refund the damage deposit

One surefire way to ruin the chances of a good review from your guests is by forgetting to refund their damage deposit.

Most probably this will actually result in the opposite scenario and you’ll have to prepare your response to a negative review from an extremely displeased traveler.

Check the local guidelines of your state for the exact amount of days within which you have to refund the deposit. The deadline is usually set between a timeframe of 14 and 45 days.

Also, remember that it’s illegal to keep the deposit without a just cause in every state.

2. Use damage deposits to make extra income for your rental

It should go without saying that these deposits exist for one reason only: to cover the costs of repairs in case of extreme damage.

You should not take advantage of this as a vacation rental owner by wrongfully misappropriating the damage deposit as another extra income.

Of course, some items in your home, such as tableware like cups and glasses, are naturally more susceptible to accidental breakage. However, such minor damages should be easily replaced without guests having to foot a hefty bill.

3. Hold on to a security deposit out of spite

As an owner, it’s your responsibility to return the damage deposit to your guests upon their departure of your property or shortly after.

For each and every repair of guest-induced damage, you’ll need a valid bill or receipt for the work done or item replaced.

If you can’t produce this receipt there’s no proof of damage either and you most certainly cannot charge your guests for it. So make sure to always keep your business on the right track and never take advantage of your guests’ trust.

4. Overlook the importance of photo evidence

If you have reason to believe a guest (or group of guests) has caused damage to your property, remember to take photographs or videos of the damage in question.

Video footage and photographic evidence are especially vital and useful in case the guest tries to dispute their guilt.

It’s a good idea to make a digital camera available to your housekeeping staff as well so they can maintain a watchful eye on your vacation rental and record any anomalies. You could even leave a camera in a locked cupboard at your vacation rental for this purpose.

5. Stress yourself out if damage caused is more than the damage deposit amount can cover

While most owners get by for years in the business without troublesome renters, there is a small percentage of incidents and so-called Airbnb horror stories.

In the very worst-case scenario, the destruction caused at your property will cost more to repair than the damage deposit itself can cover. However, try not to worry yourself in this situation – there are still some options for you.

First off, you can attempt to recuperate the money by speaking with the guest one-to-one. A personal talk face-to-face can often resolve issues easier than expected. This is especially effective if the guest has been honest and actually reported the damage themselves.

A follow-up dialogue is the crucial next step here and very often results in a simple solution for both parties, as you already know the guest does feel a sense of guilt and responsibility.

Otherwise, usually as a last resort, you can potentially take legal action against the renters. Be careful, as this can sometimes end up costing more in the long run.

But, many small claims courts will take on these types of cases. It’s always best to consult a trustworthy attorney before proceeding with any legal matters.

What to take away

Collecting damage deposits is one of the most effective methods to ensure your vacation rental remains worry-free and in the best condition.

It will give you peace of mind, knowing that potentially occurring damages can be resolved again quickly.

While it can be off-putting for some guests on shorter stays, damage deposits offer another level of security on top of your existing vacation rental insurance. In addition, it also preemptively filters guests with questionable intentions.

As long as you communicate to guests clearly and reassure them that their deposit will be refunded immediately (provided they don’t cause damage and adhere to the rental agreement guidelines), you shouldn’t have any issues with setting up a damage deposit for your property.


What do you think about this article?

Damage Deposits: Dos and Don’ts for Your Rental Business
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  1. Jamie Reply

    Hi Jess,

    We have struggled for years to find a good payment provider for pre-authorisations for damage deposits. At the moment, we have a 10 day time limit which is useless when we have clients staying for longer!

    Do you have any recommendations for providers?

    Thank you!

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