If you spend all or most of the $40K on the next property, and if you will have some cash reserves for emergencies, I can get behind this scenario where you would continue to pay her $550/month. 

I will probably have 20k to 40k cash, depending on how much I decide to hold in reserve and what I plan on doing for housing for my family.

Even if there were he would expend all his cash reserves which is the end of the ride. 

It is hard to judge how properties did in the last downturn because of too many variables to include owners living pay check to pay check with no reserves, paying 40% commissions vs self managing, location, quality, etc...

@Dave Foster can confirm. 

If you are working with banks for loans, they like to see 6 months reserves, based on the mortgage payments you have. 

Everyone is confirming the thoughts I already had in my head.

Assuming its best to do out of Austin proper due to prices and do flips to build up reserves to buy and hold eventually?

Main reason, bad things happen and you need reserves or it could really make life hard.With that saId, fInd good deals and the money will come.

I would say that the $8k will be your reserve fund for the current rental, to get another you are probably looking at 20-25% down so you will need to save up quite a bit before purchasing another. unless you wanted to 1031 exchange your vacant land which may or may not be making any income currently.