Ask ten short-term rental hosts what a security deposit is, and most will describe the same thing: money that lands in their account after booking, held until checkout, then refunded if the property comes back clean. It sounds reasonable. It is also the wrong model, and it steadily drains margin from hosts who use it on every single stay, whether anything ever goes wrong or not.
The good news is that fixing this does not require new software or a complicated overhaul. It requires understanding one distinction that hotels have relied on for decades: the difference between an authorization hold and an actual charge.
The Deposit Mistake That Costs Money Even When Nothing Goes Wrong
Here is the problem with collecting real deposit funds and refunding them after a clean stay: payment processors like Stripe do not refund the processing fee when a refund is issued. If a guest "pays" a $500 deposit and everything goes smoothly, the host refunds the $500, but the 2.9% plus flat-fee processing charge on that original transaction stays with the processor. That is real money lost on a reservation where nothing went wrong at all.
Multiply that across dozens or hundreds of bookings a year, and the cost adds up fast, all for a security measure that never actually needed to move any money in the first place.
What an Authorization Hold Actually Does
An authorization hold is what a hotel does the moment you hand over a credit card at check-in. It places a temporary hold on a portion of the guest's available credit. No funds move. The guest does not lose access to that money unless the host actually charges against the hold. If the stay goes well, the hold simply releases.
This is the model short-term rental hosts should be using instead of a traditional deposit. Using Stripe, a hold typically lasts seven days, with an additional two-day grace period, giving a host roughly nine days total to act if there is an issue. That window matters: reservations longer than seven days need to be reauthorized before the original hold expires, or the protection disappears entirely, along with any ability to charge for damage discovered later.
Choosing Between a Hold and a Damage Waiver
Not every property calls for the same approach, and the right choice usually comes down to average daily rate and market expectations.
For properties with a lower ADR in competitive markets, an authorization hold is typically the better fit. It does not add to the guest's total cost at booking, which matters when a few extra dollars in fees can push a price-sensitive guest to a comparable listing next door.
For properties with a higher ADR, or in vacation-destination markets where the practice is already standard, a damage waiver can make more sense. A damage waiver is a small fee, often provided through companies like Safely, Waivo, or Generali, that guests pay upfront as a form of built-in accidental damage coverage. It does raise the total cost of the reservation, so it works best where guests already expect it as part of the booking experience, such as established vacation destinations.
What to Do When a Guest Actually Causes Damage
Even with the right system in place, something will eventually go wrong. When it does, speed and documentation matter more than anything else.
Act within the authorization window. Document the damage thoroughly with photos, video, and timestamps before charging anything. Then communicate directly with the guest, sharing what was found and explaining the charge before it happens. Skipping that step increases the odds of a dispute, and if a guest challenges the charge with their card issuer, a host with clear documentation and prior communication is in a far stronger position.
It is worth remembering that even a well-handled charge can still be disputed, and disputes are not always resolved in the host's favor. The charge is also capped at whatever amount was authorized, so authorization amounts should be sized thoughtfully based on the property's real risk profile, not set arbitrarily.
Building a Layered Damage Protection Strategy
No single tool covers every scenario, which is why the strongest approach layers several protections together.
Start with a clear understanding of what Airbnb's AirCover actually covers. It is a helpful baseline, but it comes with limits, exclusions, and a claims process that can move slowly, so it should never be treated as the only line of defense.
From there, decide property by property whether an authorization hold or a damage waiver fits better, based on ADR and local market norms. Keep authorization amounts reasonable and proportional to the property's value and risk. Finally, train whoever handles turnovers to document every checkout as a habit, not an afterthought. A policy is only as good as the evidence behind it when it is actually needed.
Getting this right will not prevent every problem, but it closes the gap between hosts who assume they are protected and hosts who actually are, and it does it without adding friction for the guests who never cause a problem in the first place.
Ready to put the right protection strategy in place across your entire portfolio? Visit strriches.com to learn more, or reach out to our team directly.
This article was inspired by Episode 350 of the Short-Term Rental Richest podcast.