I was reading the VT state tax laws and while the language somewhat confuses me it looks like I'm subject to their state income tax as well as the federal cap gains for my tax bracket.

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. 

Learning notes is more like learning a foreign language where the best way to do it is go and live in the country and immerse yourself in the culture.

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.

In other words, you will live in the property as an owner occupied for at least 12 months.HUD has VERY strong contract language that you will have to sign. 

Unless you own free and clear, you need to have an attorney draft the appropriate language into your closing docs. 

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. 

Question,I have a friend in Orlando, FL wanting to buy a townhouse 12 mins away from Universal Studios. 

Loma Linda has a high demand for rentals with the hospital and university there.