But if I can't find one in my price range (as somewhat nice Baltimore areas are expensive) I would like to buy a house to rehab it while living in it. 

But lets say I purchased a duplex for $175,000 on a 3.5%FHA loan ($6,125 down) how much money would you consider putting in a reserve going into the deal for later expenses?

If I am understanding the above correctly, does this mean that we should buy a more expensive property for our first, perhaps a triplex with three income-producing apartments, since that is our one opportunity to pay only 3.5% down?

and am interested in exploring working with investors to enhance new properties or renovations in exchange for knowledge and a cut after expenses.

Not the cheapest for sure but not the most expensive.  

I want to buy/Invest in Real estate, my problem is – If I buy sometime to live myself then it has to pass in my criteria, near to My office, near to My friends place etc, which makes any candidate home way more expensive.I am thinking of buying an investment property while living in a rented home.. again Seattle market is very hot (the way I see it ) because rent you get it lesser than your monthly expense for that house.

Less calculations before buying as most expenses are taken care of by the tenant.Enough reading already go get you first property as there's no better time to start then now.

I have $40k in savings and very low living expenses.

You will have to stay in one  of the units for at lease a year , but the great thing about this is you will the income from the 3 other units to hel pay down your expenses on that property

Many landlord will install separate utility meters in multis to off load this expense.