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I bought my first home in 2004, 20 years ago. It’s a 3-bedroom, 2.5 bathrooms, 3-floor townhome with a walkout basement, located in Germantown, a city about 25 miles north of Washington, D.C. We lived there for approximately two years before converting it into a rental property, as originally planned.
This home wasn’t just a place to live—it was part of a long-term vision for rental income. From the start, I knew this property would eventually become a source of passive income, even though it didn’t have all the modern amenities a typical homeowner might prioritize. If you’re considering this approach, it helps to understand what vacation rental properties are and how they can align with your goals.
I did a lot to improve the house. My husband and I remodeled the unfinished basement, relying solely on home improvement books since “YouTube University” didn’t exist back then. We built a bedroom and a bathroom, even tackling the plumbing by jackhammering through the foundation slab. We framed the interior walls and hung drywall. I still remember the days when the entire basement was filled with dust because we over-applied mud to the drywall and had to sand it down. We wore masks, looking like characters straight out of a pandemic movie. We painted every wall and installed new laminate flooring.
For those considering purchasing a property with remodeling in mind, here’s how to buy a vacation rental property with an eye for maximizing value.
We wouldn’t be proud of the quality of our work. For example, I bought the smallest and cheapest corner shower, which caused water to leak from the shower door during use. Over time, mold grew on the bathroom baseboard—a problem that persisted throughout the years of renting the property until I sold it in 2017.
To avoid similar pitfalls, learning about managing a vacation rental property in 5 easy steps could provide insights into managing your properties efficiently.
If you only look at the buy and sell prices, it might not seem like a success. I purchased the property for $255,000 in 2004 and sold it for $312,000 in 2017. After accounting for transaction costs and inflation, we didn’t make much money on the sale itself.
However, the property was rented for $1,700 per month, giving it a purchase price-to-rent ratio of 12.75, which is quite good. The total return (IRR) was 9.85%, with a cap rate of 5.35% and a cash-on-cash return of 206.8%. Understanding what is a good ROI on a vacation rental property can help evaluate whether a property is a worthwhile investment.
I bought this house with the intention of converting it into a rental as a cash flow investment from the very beginning. Around that time, I was reading a lot of personal finance books, and the concept of passive rental cash flow intrigued me the most.
Who wouldn’t love the idea of enjoying life while a bunch of rental properties generate cash flow? I fell in love with this idea because of the book Rich Dad Poor Dad. The concept was simple: buy a home, improve its value, convert it to a rental, and repeat the process. If you’re inspired by this strategy, check out how to make money on a vacation rental for actionable advice.
Because of this strategy, when we were buying our first home, I didn’t focus on finding a modern home where everything was brand new. As a homeowner, I wanted the perfect home to enjoy, but as an investor, my mindset was different. Homeowners often appreciate the value created by others, while real estate investors look for opportunities to create value themselves. I began searching for properties with untapped potential—like an unfinished basement or a location near the water with a great view. That’s how I found my first house.
During the two years we lived upstairs, I spent my nights and weekends reading home improvement books and making frequent trips to Home Depot. We bought many tools that we didn’t use a second time, but looking back years later, I believe it was absolutely worth it.
When managing real estate, we allocate 1-2% of the property’s value as a budget for maintenance, repairs, and improvements. For a $1M property, that means deciding how to spend $10-20k each year. Through hands-on experience, you learn valuable lessons—like how easy it is to install floating floors, yet how challenging it can be to handle corners and transitions. You also realize how hard mudding and texturing drywall can be, but how straightforward painting a flat surface is. Finding the right person for the job can save you significantly, but you only truly understand this after getting hands-on experience yourself.
Reflecting on my journey, it’s clear that this first rental property laid the foundation for my real estate success. From humble beginnings, I gained invaluable experience that helped me grow to managing $70 million in rental properties. For anyone considering starting their own real estate journey, remember this: every great success begins with a single step. Whether it’s remodeling a basement or managing your first tenant, the lessons you learn along the way are worth every effort.