Security Deposits – do you or don’t you?

When starting a holiday rental business setting up a security deposit arrangement seems to be the obvious thing to do. It will guard you financially against damages, is easy to manage and “everyone” does it. But does it really and do they really? Here are some pros and cons of security deposits based on our experience of running holiday rentals…

Why You Should Ask for a Security Deposit

“If guests think they may lose money they will be far more careful with my property and it’s contents”

This may well be true and is probably the strongest reason to charge a security deposit. The question to ask yourself though is, are there other ways in which you could engender the same care amongst your guests? Building a good relationship before and on arrival, adding little touches like a Welcome Pack, leaving a note in your information book to tell them a little about yourselves, your family and what this house means to you. Generally treating them with care and respect. This will of course not work for all guests but as an optimist I like to think it would work for most. It will also have the spin off benefit of increasing your chances of repeat bookings.

“All hotels take credit card details on arrival for the same reason so why shouldn’t I as a holiday property owner?”

It certainly is standard practice amongst hotels. It guards against guests walking off with the fluffy towels and bathrobes etc. The relationship between a hotel and a guest (if buildings can have relationships!) is a very different one to that between a holiday property and it’s guests. The former generally being more business like. And therefore acceptable to take a security deposit. That said, it is always best practice to keep financial arrangements with your holiday property guests very business like. They are just, hopefully, less likely to walk off with your towels.

“It gives me a great excuse to follow up”

This is very true. You need to decide how long after the end of the holiday to give back the deposit. If you are on site and doing the change overs yourself then a week is probably long enough. If you are a distant owner you may prefer to wait two weeks in case anything is missed by your caretaker and appears later. It is a good excuse to email the guest to tell them that you are sending their deposit back and at the same time ask them for any feedback, to review you on Trip Advisor or offer any early bird discounts for next year.

“I won’t be out of pocket financially if there are damages”

On the surface of it this seems to make sense but actually is it true? If they break a plate or two are you really going to keep back part of their deposit? If so it is worth making it clear in the documentation you send beforehand how much you would keep back for what. What about more expensive damage? Most deposits are a maximum of £250 this doesn’t even scrape the surface if they break your flat screen HD TV or damage your expensive pool cover. These things should be covered under your house insurance in any case. So ask yourself – what would you actually keep a deposit back for? May be if they leave the house in an absolute state that requires hours of cleaning. This would seem a reasonable cause to keep back some of the deposit but DO make sure you take photos and video footage. One person’s definition of a mess may be very different to another’s.

Another view to take is that losses due to damage are part of the overall risk that need to be mitigated at a business level simply by pricing it in

Why You Shouldn’t Ask for a Security Deposit

“It makes it look like you mistrust the guests”

If you agree with this, then this is not the best footing to start the relationship off on. There is an argument that says by asking for a security deposit you are showing no trust in your guests but asking them to trust you to return it. On the other hand guests are usually not surprised to be asked and may not interpret it in this way.

“It’s too much of a hassle to administer a security deposit payment”

It doesn’t have to be. There are a number of ways it can be done. The guests can send a cheque, although remember if you don’t bank it unless there is a problem they may put a stop on it as soon as their holiday is over. They can pay it together with their final balance and you pay it back to them by BACS transfer or cheque after the holiday. You could also use Paypal but it is not true (as stated in some forums) that you will not lose any money. Paypal state “If you issue a refund within 60 days of receiving a payment by using the ‘Issue Refund’ link we’ll reimburse you the variable part of the fee you were charged, but we’ll keep the fixed part of the fee.”

It is important to have a written agreement that states under what circumstances you would retain money, how and when you want to be paid and how and when you will return the money

“The conflict of not returning the deposit is too much for me”

This is the area that causes house owners most stress. If you choose to retain some deposit the guests will undoubtedly argue with you. We are aware of times that this has become extremely messy – guests who have posted videos on the internet and negative reviews on Trip Advisor. At best they are not going to recommend your property to their friends and family. We have also heard of some particularly aggressive tactics on the part of house owners. All of this is not only emotionally draining; it takes valuable time that could be better spent in other areas of your business.

“It will put people off booking my property”

If it only costs £300/300 Euros or so a week to rent your holiday property asking for a security deposit of £200 may well be off putting to guests. It may well be that they simply couldn’t find the money rent and the security deposit. In these circumstances you may choose to have a much lower nominal deposit or none at all.

There is no right and wrong answer and we would be very interested to hear your comments or ideas on this topic. Please do tweet them to us or share on our Facebook page