Damage Deposits: Dos and Don’ts for Your Rental Business

Do vacation rentals in Florida’s First Coast need damage deposits?

Many owners seem to be unsure about this, but there are many benefits to having a damage deposit policy. One of them being so that you have financial backup for if or when something goes wrong.

You can decide on the extent of the charge depending on your property type and house rules. Not only do damage deposits give you peace of mind, but they can also provide guests with a more responsible mindset for their stay.

However, it is wise to reconsider requiring a damage deposit if you would be the only one doing so in the area. Check the listing sites to see what the situation is like in the local vacation rental market.

Many best practices have emerged from the heavy use of security deposits. In this article, you will learn all about the dos and don'ts of collecting, keeping, and returning damage deposits.

DO: Calculate the proper damage deposit

There are two main approaches to calculating the deposit amount. The first one uses a fixed sum: for example, $200. The amount is the same regardless of how long the guests stay in your vacation rental. The calculation of the set amount is usually based on the value of the amenities.

Another approach is to use percentages. After opting for this method, you will need to figure out the deposit amount based on a percentage of the total rental price. For example, you could set the deposit amount to 12% of the final price that your guests pay for their stay.

DON'T: Leave the house rules unclear

The first step of damage control is creating clear house rules for your guests. Let's take a look at some of the things you could cover:

• Ask your guests to treat the rental property with the same respect and care as they would their own home. • Point out noise regulation rules, such as keeping it quiet during the night. • Explain the use of and important safety rules for any appliances, HVAC systems, heaters, and any other amenities. • Lay out the guidelines on dealing with any accidental damage on the property. • Explain how recycling and trash disposal works in the vacation rental. List their responsibilities on keeping the space clean. • Provide rules associated with security and safety on the rental premises.

DO: Record damage evidence

When you find any damage caused by your guests, it is important to take photos or record video material of the offence. The recordings are useful if your guests file a dispute.

DON'T: Forget to check the tax rules

Lodging taxes are tied to short-term rental charges, such as the room rate and cleaning fees. Nevertheless, in most cases, security deposits are not subject to lodging taxes. Whatever the case be, it is smart to check your local regulations, as there are minor exceptions all over the country.

DO: Think through the payment methods

Avoid any issues down the road by setting clear guidelines for payment methods. There are many ways of accepting damage deposit payments:

• Cash deposit on arrival

• Charge and refund • Pre-authorization

Cash deposit on arrival is the easiest approach. It is straightforward and easy to understand for your guests. Pre-authorization may require explanations to less-experienced guests. Charge and refund may raise suspicion in some people, especially if they have not seen a similar method used before.

Still, a cash deposit is not a viable solution when you have automated the whole check-in process. Most likely, you will have to opt for a charge and refund or pre-authorization. Just ensure that you understand the limitations of these methods. In many cases, charge and refund means paying double transaction fees. Moreover, pre-authorizations usually have time limits (which vary among credit card companies).

DON'T: Delay processing the deposit

As every payment process needs correct documentation, it is important to list the damage deposit payment in the booking invoice. Charge the credit card immediately, so that if any of the details are incorrect, you can ask the guests for a quick confirmation.

It is also important to refund the deposit without a long wait time. Many states define the maximum number of days for refunding the deposit. On average, the period is between 14 and 45 days.

DO: Acquaint yourself with booking site terms

Do you use Airbnb, HomeAway, or other online services for filling your vacation rentals?

If yes, then you should check their security deposit processing policies. These sites use various approaches for dealing with the collecting and refunding of damage deposits.

Airbnb, for example, asks owners to process all the security deposits via their system. Asking for damage deposits outside the Airbnb platform would violate their terms of service. Similarly, VRBO has an automatic refundable damage deposit option on its platform for hosts to use.

DON'T: Overlook short-term rental insurance

Security deposits offer some financial protection, but you still need property insurance. It is vital to check that the policy covers short-term rental properties before signing anything. Otherwise, the insurance might not cover the damage caused by your guests.

The bottom line: damage deposits for your vacation rentals

Damage deposits are necessary for any vacation rental business in Florida’s First Coast. You will have the confidence that when something goes wrong, you are able to deduct the associated expenses.

Always make the house rules and damage deposit policy as clear as possible. Answer any deposit-related questions to avoid misunderstandings and complicated conversations later.

Damage deposit processing details need your attention. The most viable payment option rests on your check-in approach. Additionally, if you use any booking platforms like Airbnb or HomeAway, make sure to follow their terms and conditions on damage deposits.

If you think that you and your business would benefit from hiring a professional property management company on Florida’s First Cost, don’t hesitate to contact us at Suncastle Property Management today!

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