So what works for you in your state isn't always universal. 

See item #3 for where I think much of the shortfall is.3) Somewhat related to item #2, I filled out a spread sheet to determine cap expense numbers and what I determined is that investors in small number of unit dwellings are virtually universally under estimating cap expenses.  

The internet is not one physical location but an amalgamation of locations whereas real estate is a specific place in the universe.

I played college football for the University of Louisville and graduated about 3 years ago and pretty much didn't know where to go from there.

Degree Real Estate Development with Multifamily Concentration (Kennesaw State University)M.S.

And Merced may also be a good location due to the university expansion although I haven’t looked too much into that yet.

I would take that $40k and identify an area that is up and coming, near a college, university or employment draw, and purchase a small condo as a rental. 1 Bedrooms or studios make excellent rental investments. 

Before I answer these questions, I would like to hear how everyone determines how much they can spend on a house, so that I can narrow down my universe.

Every deal is going to be different, and every different exit strategy is going to have its unique set of factors that you'll want to investigate, analyze and be aware of.Pick up a good real estate development text book, take some university-level real estate courses and find someone doing what you want to do and see if you can get them to spend some time with you.

I lived there few a few years in a 3BR house next to Chapman University while renting out the other two bedrooms.