Better yet, define your end goal (be very specific) and work your way back from there.

My ultimate goal is to achieve financial freedom (which I define as not having to work if I decide I don't want to), and I believe real estate is the best option to accomplish that.

You have multiple questions and some of them arent well defined.  

Your goal is broad ("understand REO's more") and not well defined.  

As such, the monthly rental profit is also wrong and should be $298 not $430.The calculations you are using to define "Monthly Note Income" are also not correct in "Mortgage #2".  

If rates have shifted and that's the best you can expect currently, then what is reasonable will be defined by your expectations of return and cash flow numbers.

Speaking strictly for myself as a new investor, I think it best to stay not just within my own city, but within certain defined areas of my city.

@Jason Natelleit seems to me that you need to more clearly define your objectives and goals.

I would define what you need first out of your real estate investing and focus on educating yourself, and meeting those out there being successful with it today.

You are better off to define the rules you want for your property (within the law of course), set the appropriate rent amount, and then enforce the rules consistently and without bias.If your property is in San Jose, the market is very good right now.