Smart Ways to Cover Yourself for Accidental Short-Term Rental Damages
Most guests are respectful of your properties. But as every property manager knows, damages are an inevitable part of the holiday rental business.
Dealing with those damages – a broken wine glass, a stained sofa, or worse – is often the bane of a Property Manager’s role. Chasing guests for funds after they’ve checked out is stressful, unprofessional and often unsuccessful.
This is why having a robust short-term rental security deposit strategy isn’t just an option; it’s essential for protecting your owners’ assets and your business.
But what’s the best way to do it? Do you take a traditional bond? Just put a ‘hold’ on the card? Or is there a more modern, automated approach?
Based on our recent webinar, Setting Up Security Deposits Like a Homhero Pro, we’re breaking down the three distinct methods you can use to cover yourself for damages, along with the pros and cons of each.
1. The ‘Traditional’ Refundable Security Deposit
This is the classic method most people are familiar with.
How it works: You physically charge the guest’s credit card or bank account for a set amount (e.g., $500) before or upon arrival. This money is transferred to your account. After the guest departs and you’ve completed your inspection, you must manually refund the money to their original payment method.
- Pros:
- Full Control: You are in complete possession of the funds. There’s no risk of a ‘hold’ expiring or a bank releasing the money before you’ve had time to make a claim.
- Cons:
- High Admin: This method creates the most manual work. You must process the payment and remember to process the refund for every single booking, which is a significant administrative burden.
- Guest Friction: The guest is physically out of pocket for the full amount, which can sometimes lead to pre-arrival complaints or cash-flow issues for them.
2. The ‘Streamlined’ Pre-authorisation (Pre-auth)
This is a more modern and common approach used by many property managers and hotels.
How it works: Instead of taking money, you place a temporary hold on the guest’s credit card for a set amount. On the guest’s bank statement, this appears as a “pending transaction.” Their available balance is reduced by that amount, but the money never actually leaves their account. The pre-authorisation must still be initiated manually – either by the property manager or by the guest through the guest portal. Once processed, if no damage occurs, you do nothing, and the hold is automatically released by the guest’s bank.
- Pros:
- More Automated: This is a huge time-saver. You don’t have to manually receipt the funds, and more importantly, you don’t have to process any refunds.
- Better Guest Experience: The guest isn’t charged, so they don’t feel like they’re ‘paying’ a deposit, which reduces friction.
- Cons:
- Some Manual Steps Remain: The property manager or guest still needs to initiate the pre-auth, so it’s not fully hands-off.
- Less Control: The guest’s bank controls the release of the hold, not you. This timing can vary from 7 to 30 days.
- Potential for Guest Confusion: This lack of control can cause questions. A guest might call you 10 days after their stay asking, “Where is my refund?” when in reality, the pending charge simply disappeared from their statement (it wasn’t a ‘refund’ because it was never a ‘charge’). Your team must be trained to confidently explain this process.
3. The ‘Flexible’ Damage Waiver
This third option is a modern alternative that replaces the security deposit entirely.
How it works: Instead of a large, refundable deposit, you add a small, non-refundable fee (e.g., $40 – $60) to every booking. This fee is often called a ‘damage waiver’ or ‘accidental damage protection.’ These funds are collected and set aside in a “pool.”
When a small incident occurs—like the inevitable broken wine glass—you don’t have to argue with the guest or owner. You simply use a few dollars from the pool to cover the replacement. Because most guests don’t cause damage, this pool accumulates over time, creating a buffer to cover damages when they do occur.
- Pros:
- Fully Automated & Seamless: The fee is just part of the total booking cost. There’s no separate payment, no hold, no refund, and no guest questions.
- Reduces “Small Damage” Arguments: You avoid the awkward “who pays?” conversation over a $10 item. You just cover it from the pool, saving you time and protecting your guest reviews.
- Not Limited by a Set Amount: If a guest causes $1,000 in damage, you’re not limited to a $500 security deposit. You can draw the full $1,000 from your (hopefully well-funded) pool.
- Better Guest Conversion: A guest tossing up between two properties may be more likely to book yours if it has a simple $50 fee instead of a $500 deposit hold.
- Cons:
- Requires Build-Up: You can’t start this from zero. If your first guest causes major damage, you won’t have any funds in the pool. Many PMs run a damage waiver alongside a traditional deposit for a short time to build up the fund.
- Not for Everyone: If your properties are in a high-risk area (e.g., with a lot of partygoers) or your nightly rates are already high, adding another fee might not be the right fit.
Which Damage Protection Method is Right for You?
Here’s a quick comparison to help you decide what’s best for your business.
| Feature | Refundable Deposit | Pre-authorisation | Damage Waiver |
| Payment Type | Full transaction (charge) | Temporary hold | Small non-refundable fee |
| Admin Work | High (manual refund required) | Low (auto-release) | None (part of booking) |
| Guest Experience | Okay (out of pocket) | Good (no charge) | Excellent (no hold) |
| Refund Process | Manual | Automatic (by guest’s bank) | N/A |
| Flexibility | Limited to deposit amount | Limited to deposit amount | High (draw what you need) |
| Best For… | PMs who want full control. | PMs who want automation. | PMs who want flexibility & guest experience. |
How Homhero Helps You Automate Damage Protection
The right strategy might be a mix of all three. You might want a $2,000 pre-auth for your luxury beachfront home but a simple $500 refundable deposit for a budget apartment.
This is where your software needs to be as flexible as you are. Homhero is designed to handle all of these scenarios seamlessly. With Homhero, you can:
- Set Different Deposits for Different Properties: Create unlimited security deposit types (refundable, pre-auth) and amounts, then attach them to specific properties.
- Take Deposits on Airbnb Bookings: Yes, it’s allowed! As an approved software partner, Homhero allows you to collect ‘offline’ security deposits for Airbnb bookings, giving you protection beyond the Resolution Center.
- Automate Guest Payments: Stop chasing. Our new Guest Portal Security Deposit feature allows guests to pay their deposit or pre-auth online themselves. You can even send a direct payment link in your automated correspondence.
- Manage Pre-auths Directly: For Merchant Warrior users, you can ‘capture’ a pre-auth (i.e., claim the damage funds) directly from the booking in Homhero, without needing to log into your payment gateway.
Protecting your properties doesn’t have to be a manual, time-consuming process. By choosing the right strategy and automating it with a powerful tool, you can save time, reduce stress, and keep both your owners and your guests happy.
Want to see how you can automate your security deposits and guest payments? Book a demo of Homhero today and let our team show you how.
Related Knowledge Base Articles
Airbnb Offline Fees – Security Deposits
How to create a Refundable Sundry
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