A question we get asked a lot - should we charge a security deposit? On the one hand we want to protect ourselves if our properties are mistreated (we've all heard the stories, or experienced issues ourselves) but on the other, we don't want to deter guests from booking.
Our recommendation is yes, collect a security deposit. It's worth it for the peace of mind.
- The benefits of collecting a security deposit
- Disadvantages and what to be aware of
- Best practices when using security deposits
- 🛡Protection against damage and misuse.
- 🙋♀️Guests feel more responsible. Honest guests aren't discouraged with a reasonable security deposit. It also deters unsuitable guests.
- 🏃♀️Fastest way to collect funds to pay for repairs before your next guest arrives. Insurance (for example) may pay out but can take weeks or months.
🛡 Protection against damage and misuse
Obviously this is the main aim of collecting a security deposit. If you don't collect a deposit it can be impossible to force your guest to pay for any damages they cause.
Airbnb offers a host guarantee, but this isn't always reliable and other bookings sites don't offer anything similar. Airbnb allows you to set a separate security deposit on your listing, however, as this isn't taken at the time of booking (or before staying) it is not always reliable either.
🙋♀️ Guests feel more responsible.
Honest guests aren't discouraged with a reasonable security deposit. It helps to instill a sense of awareness and responsibility.
As a bonus, security deposits helps to deter unsuitable guests. Not all guests are created equal, as you know!
🏃♀️ Fastest way to collect funds to pay for repairs before your next guest arrives.
A key benefit. You can set the security deposit amount to what you think is suitable. If required you will have ready access to funds to immediately put towards damages, repairs and/or extra cleaning.
You can keep downtime to a minimum and mitigate against potential loss of earnings from future bookings.
- 👎 Security deposits can deter some guests
- 🙅♀️ You can get push back from guests if they disagree
- 😰 Extra workload, although there are automated solutions
- 💰 Can add extra costs
👎 Security deposits can deter some guests
If guests are comparing your property and another with a lower security deposit, you may lose out on the booking. This is the number one concern of hosts and property managers and one you will need to weigh up yourself. As mentioned above, security deposits shouldn't deter responsible guests and will deter unsuitable guests.
Security deposits are widespread and familiar to guests, however, if you are concerned about applying security deposits you can mitigate against damages by applying a longer minimum length of stay (deters parties), or by using an alternative like damage protection insurance. Both of these come with their own disadvantages.
🙅♀️ You can get push back from guests if they disagree
It's a grey area, your word against theirs which can lead to disputes.
The following best practices will help you avoid any guest or operational issues relating to collecting security deposits from your guests.
👀 Be clear with your house rules and policies
Clear and simple house rules and policies help to put your guests at ease and to act as guidance when you need to dip into the damage deposit. A few things to bear in mind:
- Let your guests know a security deposit is required on your listings (and show the amount)
- Make your guests more comfortable by informing them what to expect:
- What is the deadline for providing the security deposit?
- What will the security deposit be used towards?
- Are you taking full payment, or pre-authorising the card?
- When will guests be refunded their deposit?
👍 Charge the right amount
Charge enough to cover damages and incentivise guests to look after your property but not too much to discourage guests from booking. 10% to 20% of the total booking price is typical - this can be a set and forget amount based on an average of multiple bookings.
If you're not sure what to charge take a look at similar listings in your area.
🤖 Automate the process
Manually collecting a security deposit for every booking can be a lot of work, especially when managing multiple properties. We recommend collecting guest credit card details (using a payment processor such as Stripe) soon after booking, then taking payment just before check-in.
This way offers a few benefits:
- Guest payment details are stored securely and are on hand
- The need to chase guests for payment just before check-in is avoided (less stress!)
- Guests are made aware of the security deposit immediately.
Check out Uplisting's Automated Security Deposit feature. Automatically collect payment details from guests and take a pre-authorisation on their card 24 hours before check-in.
You only get involved if a guest doesn't provide valid payment or you need to charge for any damage. Learn more about our short-term rental security deposit feature.
Alternative to cash deposits - damage protection insurance
An alternative to cash deposits is damage protection insurance. Here damage caused by guests can be claimed for.
Benefits of damage protection insurance
- Can be automatically applied based on when your property is booked
- Fees are relatively low ($5 or less per night).
- You can absorb the costs or request guests to pay
Disadvantages of damage protection insurance
Like all insurance, it can be limited. Some things you should be aware of:
- May not cover damage caused intentionally and/or theft
- May include an excess
- May be either limited to the small things (eg. broken chair) or the big things (house party)
- Can take weeks or months to pay out
Short-term rental insurance protection options:
- UK - Guardhog (protects you against the big things)
- US - Property Protect (protects you against accidental damages)