They should be able to give you an idea of current value/ARV. 

I know the neighborhood well, especially in terms of pricing, and I had some ideas about modifying this house.

We use the RHAWA lease agreement, if you are not a member of that organization or WLA, I would recommend you sign up.In the RHAWA lease agreement (not Seattle specific), it states that security deposit can be used all purposes including unpaid rent, damage, cleaning, late payment, utilities, keys and other charges.It is never a bad idea to pay for an hour of an attorney's time to go over any of these concerns and then you can be confident you are following the law.

Since I entered 10% into VRBO rather than it prompting me, I have no idea if they are going to send what percentage to whom.  

I have very little knowledge on it but the idea intrigues me as a way to obtain more property over the coming years. 

Interested in any thoughts feedback or other alternative ideas?

You have no idea which way the value of the property goes. 

I think it's an awesome idea.

Curious what the first step should be after we've solidified our budget.Open to any suggestions, ideas, and comments.

I am not saying that it is a bad idea or not worth it.It appears that you are doing just fine.