Great rental income to supplement the mortgage but not currently cashflowing.

The $41k would be used to supplement some savings. 

I would venture the vast vast majority of BP’ers use RE to supplement their income, not replace it.  

Note: SSI is a common abbreviation for Supplemental Security Income which is different from Social Security benefits.

Should I buy in Denver, and focus on larger rents after I pay it off, or should I buy out of state for all cash and get immediate supplemental income?

The lump sum money may negatively impact the amount the state will supplement for care until all of her cash has been spent.

Perhaps you will be more efficient next time making a cash offer above her balance with incentives. 

Nothing wrong with getting into rentals for supplemental income but I'd shoot for a rental that appreciates in value. 

I'd suggest going this route to supplement your current business but don't look at it as your main source.

* My goals: I'd like to generate some supplemental passive income through investing in real estate rentals in cheaper markets, with the end goal being to assist me in saving to buy a home of my own here in Los Angeles (in the $750k range), and maybe eventually replace my current work.* My job: I currently work from home running my own online fashion brand (it's an LLC).