You can often times save money and create a much better product than you would have had if you would have purchased it for a premium.

In that regard you better put money into CD. 

If you're in So Cal, the closest neighboring city with better property taxes (they don't reassess on the sale), landlord laws, prices, etc. is Nevada (particularly Vegas). 

A duplex/triplex may be a better option to offset the mortgage and avoid hefty assessments, or increases in HOA. 

I have found that PM's perform better in certain parts of town or different quality/class of homes. 

Heck with 40k you can buy a SF with seller financing and learn, much better to actually DO and learn vs reading books or listening to some guru Hey all, I see so many posts, " I am researching, " I am doing my homework" , I am trying to build my team" "Deciding on which area" So many are TRYING but never do anything, like a hamster on a wheel, A LOT of movement but staying in the same place.

However, especially for your first, I would suggest the money you pay for either option is a better value than doing it yourself.Pursuing an investment with a partner does complicate hings slightly and I'd recommend discussing the legalese with an attorney.How do you stop a tenant from wrecking your property? 

The smaller ones know the market better and usually dont ask for as much.

That would appear to be a better deal vice doing a cashout refi on your 400k and going from 3.75 to 8.99% on the entire amount. 

The worse the damage the better for you if you know what you are doing!