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

There are 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!

What to do:

Use your weekly rate to calculate deposit amount

It is standard practice for most property owners to either use a set amount (such as $250) or a percentage (i.e. 10% of the rental price total) to calculate the appropriate deposit amount. In the case that the percentage works out higher, this is the amount you should think about charging your guests.

Review deadlines and restrictions of your damage deposit payment method

If 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.

Set very clear house rules in your rental agreement

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. In this case, the more details you can provide, the better, as it will help reduce the possibility of violations from the guest’s side.

Process the damage deposit immediately

Whichever method you choose, 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/incorrect bank card details and gives you chance to ask them to confirm their information again.

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. That’s why building a good, close relationship with anybody who takes care of the cleaning and maintenance of your home is key. 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.

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

If your property has already incurred damages which you are unable to repair before the next set of guests check in, 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.

Give your guests a window for paying the damage deposit

Should your guests be paying for the security deposit by check, three to five business days should be long enough for you to receive that and process it. However, those paying by credit card should only need 24-48 hours to make their payment and for it to go through.

What not to do:

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. Check local guidelines for your state for the exact amount of days you have to refund the deposit within (it’s usually between 14 and 45) and remember, it’s illegal to keep the deposit without just cause in every state.

Use damage deposits to make extra income for your rental

These deposits exist for one reason only: to cover costs of repairs in case of extreme damage. You should not take advantage of this as a vacation rental owner. Some items in your home, such as tableware like cups and glasses, are more susceptible to accidental breakage and should be replaced without guests having to foot a hefty bill.

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 departure of your property. For each and every repair of guest-induced damage, you’ll need a valid receipt for the work done or item replaced. If you can’t produce this receipt, you most certainly cannot charge your guests for it.

Overlook the importance of photo evidence

If you have reason to believe a guest (or group of guests) have caused damage to your property, remember to take photographs or videos of the damage in question. This is useful in case the guest tries to dispute it. It’s a good idea to make a digital camera available to your housekeeping staff so they can maintain a watchful eye on your vacation rental and record any anomalies.

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. Try not to worry – there are still some options for you.

First off, you can attempt to recuperate the money by speaking with the guest one-to-one. This is especially effective if the guest has been honest and reported the damage themselves, as you already know they 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. 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.

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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