The rest of it (40%) went to my initially unplanned upgrades of finishing the basement and putting a full bath in it.

My goal is to have 20k to invest and to be safe I want an extra 5k to have a backup in case of unplanned costs due to inexperience in the buying process, having vacancy the first months, etc...Question 1: Does it make sense to minimize my 401k contribution to nearly nothing to speed up my savings for REI?

Lower your DTI and 2. relieving you of financial burden as your first rental property may need you to take on unplanned financial obligation. 

In the latter part of last year I executed a very large 1031 exchange and I am now the owner of a number of real estate properties. The properties are all owned free and clear and the income from them has proven to be...

But they don't have the income to offset any major unplanned expenses.

Any unplanned vacancy or unforeseen maintenance issue could be all of the cash flow for several months.

My first purchase in Hawaii in 1978 has experienced 6%+ annual rent growth and appreciation of 9%+ annually and not one day of unplanned vacancy. 

I would probably do everything I could to find a different place to live (leaving you in the lurch with a month's unplanned vacancy).

Keep or get 6 months of reserve to help with any unplanned expenses.Good luck to you!

Always best to err on the conservative side.CapEx/Repairs - you mention the condition of the furnace, roof, and water heater, but still need to account for unplanned expenses.