And let's be honest - he's going to be living there. 

I don't know what state you live in, but if you live in CA and own rentals anywhere, you have to have a CA LLC.

I live in Socal too (Long Beach) and agree with you, buying investment properties here is tough.

You could each live in a unit and rent the other 1-2 units out. 

With 40k cash, a wife that loves your current home, and 2 kids, stay put unless you can find a compelling reason to convince your wife to do another live in flip or live in a 2-4 unit house hack.

@Christopher Reynolds My mantra has always been, "Live where you want to live; invest where it makes sense."

Since neither you or your girlfriend work in the tourist industry’s, nor should you plan to live in the strip. 

Nothing beats living in the Sunshine State!

Let's say you start a foreclosure on a vacant house in Alabama worth exactly $50,000 as is, whose owners of record are dead, and whose true owners are ten heirs who live out of state and don't like each other very much and are not savy real estate investors.

Quote from @Charles Kannon: I lived in my home in South Carolina as my principal residence for all of the last 10 yrs, moved, then sold with owner-financing. 3.5 yrs later after sale, the buyer re-sells the home and sends me full loan payoff.