Damage Protection vs. Security Deposits

Damage Protection vs. Security Deposits

One of the top worries and fears of new vacation rental companies is that visitors will wreck their property, and they’ll end up with their very own Airbnb horror story.

Fortunately, there are numerous ways for owners to safeguard their homes and businesses and avert this kind of scenario.

Charging a security damage deposit may be the best choice for certain vacation rental owners. By requesting a refundable deposit up the advance, owners have a fund they may draw from and remove money from if any damage is done to the property.

For damage protection insurance, some hosts would rather charge their visitors. This usually only adds another layer of security to the property and is a minor, non-refundable price. The owner would have to go via the insurance company to get the proper compensation for rental damage.

When determining whether damage protection insurance or security deposits are the best options for your company, there are many considerations to keep in mind. We’ve done the legwork and compiled these lists of benefits and drawbacks for you:

The benefits of security deposits

Encourages visitors to take care of the property

Suddenly, guests feel a larger responsibility for the property after paying an additional amount of their hard-earned money. Although you have undoubtedly already checked your incoming visitors, security deposits discourage unsuitable tenants who are likely to cause harm.

When you add up the price of their trip plus the refundable deposit, the sum that guests could lose suddenly becomes very real. This won’t be a problem for conscientious tenants as they know they will return the keys to a spotless home that has been maintained precisely as they found it. A sizable security deposit, however, can also warn visitors that bad behavior could result in their forfeiting their deposit when it’s time to check out.

The deposit sum is negotiable by the hosts.

One of the main benefits from a business standpoint is that owners and managers can decide how much to charge for the security deposit. When your property is more likely to sustain damage (for example, if it is pet-friendly), you may wish to charge more. Because of this flexibility, collecting security deposits can greatly help nervous owners.

The hosts get paid upfront.

Hosts will have a backup strategy in place if something goes wrong because of the nature of collecting security deposit payments. This upfront deposit enables hosts to deduct from it if major maintenance, replacement, or cleaning is required.

Security deposits have drawbacks.

Visitors hesitate to make payments

Large security deposit requirements can potentially discourage certain guests from staying at your house, which is one of its main drawbacks. Being forced to give the host such a large sum of money without receiving any benefits can be frightening.

Increases the workload for owners

It’s possible that requiring a security deposit may ultimately make things more difficult for hosts and owners because some nations and even localities have extremely precise laws and regulations governing short-term rentals. For instance, there can be particular deadlines that owners must follow (such as when it comes to claiming against the damage deposit) or particular entities where the amount must be put, etc.

Deductions may be disputed between owners and visitors.

It’s frequently the owner’s word against the visitor’s, as anyone who has leased a property—whether long- or short-term—and had something taken out of the security deposit will appreciate it. The guest may have a terrible experience and be prompted to leave a bad review if there are significant arguments over what should be fairly subtracted from the security deposit amount.

Benefits of Damage Protection

Fewer hassles for greater coverage

Offering extra damage protection to visitors is a smart and easy method to insure your house in case of accidents, in addition to the short-term rental-approved home insurance you already have. It’s hassle-free because no returns are necessary; visitors simply pay a tiny non-refundable additional fee on top of the rental price.

75% of guests think it’s better

Over 75% of visitors prefer to pay a little extra cost rather than a sizable refundable deposit, according to research from the home-sharing website HomeAway. Some of the drawbacks stated in the deposit section may be to blame for this. For example, they may be afraid to spend so much more money, or they may be concerned about a conflict at the register.

Numerous options for services

Recent years have witnessed a tremendous increase in the number of different service providers who can help with services like damage protection insurance for vacation rentals. This indicates that it is getting simpler to suggest this to your visitors rather than the standard security deposit choice.

Problems with damage protection

There are gaps in the coverage.

One of the major drawbacks of damage protection insurance is that it frequently falls short of covering everything you might need it to. For instance, extra visitors, smoking within the house, pets, lost rent during repairs, or exorbitant cleaning costs. Additionally, while some plans might pay for new furniture, electronics, or rooms to replace any damaged ones, they might not cover the labor costs associated with repairs.

Various guest attitudes

Damage protection might sometimes encourage a different type of guest mindset than security deposits, which require guests to leave sizable cash and take ownership of the property. Guests may be less responsible when maintaining the property because they are certain that they have insurance that will “pay any damages” and won’t come out of their pocket.

Long-term use may be time-consuming.

Going via the insurance company procedure in the event of damage can take considerable extra time. In addition to filing the complaint and waiting for a response, you will also need to schedule the maintenance and repair crews, replace broken furniture, and perform other tasks that could render your house unfit for rental for weeks.

Each company that offers vacation rentals will have a preferred strategy for preventing property damage. Which practice, damage protection, or security deposits would you advise new owners to adopt? Why?

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