A security deposit is a refundable amount of money that serves as financial protection for property owners. Almost all vacation rental owners and operators implement security deposits to prevent revenue loss in the event of last-minute booking cancellation or property damages. Also, setting a security deposit is an excellent strategy to minimise possible tenant-related property damages by inviting your renters to be cautious about protecting your home and deterring them from damaging your property.  

Different laws are exercised in various countries regarding how to accept, keep, and return the security deposit. However, there are some basic security deposit rules in the vacation rental industry that every landlord must know.

Following is a summary of three common rules that you, as a property owner or manager, may admit while dealing with security deposits:

1. The rule for the security deposit amount: a vacation rental security deposit should be defined based on the country’s legal limitations alongside OTAs’ related policies and the local market trends.
2. The rule for keeping/deducing the security deposit: as a property owner, it is necessary to know when a guest is responsible for damage and what are the standard steps in claiming a security deposit.
3. The rule for refunding the security deposit: a fast and straightforward refunding process brings a seamless experience for your guest and is a must for better handling your rentals’ security deposits.

1. Security Deposit Amount Limits

In setting the amount of security deposit for your rental, you should consider three main factors: the related law in your country or state (if any), regulations of OTAs that your property has been listed on, and your accommodation type and condition.  

Your Country Rules and Local Market Trends

As a first step, you may explore the relevant regulations that specify renters’ rights in your area and follow them to determine the security deposit amount. Besides obeying your country or state’s related legal limits, there are other essential factors that you should consider while setting a security deposit for your property, and the local market is the most important one. Always compare your rentals with other competitors in the market and define a reasonable outlay to keep your prospective guests and stay in the game. You should also charge enough value for a security deposit to provide renters enough stimulus to take care of your property and avoid damage.

OTAs’ Security Deposit Rules and Basics

Airbnb security deposits are set based on the type of property and booking/reservation timing, and factors such as nationality, race, gender, and age must not be considered. Some OTAs allow the hosts to set the amount of security deposit in a range between $100 and $5,000. For example,  Vrbo takes the amount equal to 10% to 50% of the rental cost. However, many landlords usually use the typical security deposit amounts of $250 or $500, and also the value could be equal to 10% of the rental price if the leased expense is high.

Your Property Type as an Essential Factor 

The type of property is another essential item in establishing value for the security deposit. A certain amount of security deposit for a small serviced apartment could be considered unsuitable, while the exact amount would be totally okay for a luxury house. Furthermore, long-term stays and pet or kid-friendly vacation rentals may need higher deposit charges due to a higher risk of property damage.

2. Security Deposit Collection Rule

Based on the damage’s size, sometimes you might keep the whole deposit, or only a portion of that, or even claim more money if the damage costs more than the charging amount.

When to Collect the Security Deposit?

Any property damage proved to come from guests’ behaviours deserves capturing the security deposit. To specify what tenant-related destructions are, holding a detailed rental agreement that walks guests through your protocols seems crucial. Thus an explicit agreement gives you a more solid ground in assigning the violations from your property’s routines. But you should be aware that not all damages are tenants-arisen, and not every single accident is real damage. The following items may help you distinguish this difference by showing things that are less-likely damaging to your house.

• Normal wear and tear and minor accidents, such as broken glasses and small scratches;
• To change the room decoration and moving the furniture if it’s not already on your property agreement;
• If the renter hasn’t left the room as clean as you expected, but the room is still in a decent condition and needs regular cleaning;
• The damages that cannot be attributed to tenants (e.g. external property damages or water leaking due to worn pipes).

How to Collect the Security Deposit?

One of the significant security deposit rules is knowing how to collect the security deposit. To collect the deposit of your property that had been booked through OTAs, you must claim for damages and follow the Host Guarantee Terms and Conditions that the agency offers. As an example, you can find Airbnb’s host guarantee program here. Keep in mind that OTAs have their own specifics and rules, and you will violate their terms and conditions if you collect security deposits outside of their booking system.

Whether you have your own booking website or using booking platforms, it is vital to remember some simple tips when it comes to claiming a security deposit: 

• Notify the damage immediately- preferably the same day of departure or within two days after tenants’ check-out.
• Notify them through different ways, such as calling, sending emails, or text messages, and make sure they have received your message.
• Document any disputation with the renter when claiming a security deposit. Take pictures of the damages and record the receipts and costs you had to spend on repairs.

3. Security Deposit Refund Rules

In most cases, you have to return the deposit or part of the deposit to renters. Refunding must be applied during a particular period of time, and the process should be simple and straight. Like many OTAs and booking platforms, the deposit is released around 14 days after the check-out or sometimes before the next guest’s check-in. It is always suggested to refund the money during the period you’ve set, and as soon as possible. Addressing that, you will build a strong relationship with your guests. 

Delay in security deposit release will have some consequences that you’re familiar with. Yes, negative reviews. In addition, according to some countries’ law, there could be a legal sentence for a landlord who doesn’t refund the deposit during the expected time or keep the deposit without notice. In this regard, the tenant can make a lawsuit, and the landlord may have to be charged twice of the security deposit value, more or less.

As a vacation rental owner, you know that the security deposit performs as an extra layer of protection and assures you that your rental remains worry-free and your revenue won’t be lost. Therefore, knowing security deposit rules and all the tips and tricks of handling security deposits helps you better manage your vacation rental business. But bear in mind to treat the security deposit in the spirit of hospitality and keep them fair and simple to bring seamless guests’ experience and gain tenants’ full satisfaction.