When do you charge your guests deposits and how much should it be? Well, first, let’s get our terms straight.  There are two types of deposits and understanding the difference is important.  

A reservation deposit is a specific amount of money that validates the booking and is then typically applied to the total rental amount. 

A security deposit is insurance against damages caused by a guest during his or her stay and is generally above the total rental amount and is refundable when the guests leave the property in the condition in which they found it. 

First and most importantly, know your local and state laws regarding security deposit collection and refund. For example, the Vacation Rental Act dictates how security deposits must be handled legally in the state of North Carolina. Search for your state’s law to understand how you’ll need to comply. 

As a rule of thumb, a security deposits should be around $500 or 10% of the total rental rate, whichever is greater.  But, security deposits are often specific to a local market, so do your homework and see what is being charged for comparable properties in your market.  Further, each short term rental platform has its own security deposit policies, so it’s important to review those policies when deciding on whether to require a security deposit or the appropriate amount. Please note that security deposits cannot be kept in the event of a cancellation.  

If you do not handle cleaning and property turnover yourself, your housekeeper or property manager should check the home before and after every guest’s stay to identify and document when damage might have occurred and be able to clearly identify which guest would be responsible.

One best practice is to require that guests inspect the unit upon arrival and report damage or broken items. With an initial guest-conducted inspection, if damage is discovered after checkout that was not initially reported, you have a better chance of identifying which guests were responsible for the damage.  

In the event you need to use all or part of the security deposit to make repairs or replace broken or missing items, you should keep detailed records and receipts associated with the repair or replacement of the damaged item.  Be sure and understand the rules for resolving damage issues on the short term rental platform where you list your property. In every case, issues should be addressed in a timely manner. A deposit can only be held for a specific amount of time and cannot be collected on after they are released.