I did some digging and it used to have a house on it, but it burned down several years ago. 

They may just be financially savvy or have been burned in the past. 

This brings up unique problems like who's responsible for damaging the fridge, who cleans the bathroom, who pays for the burn marks on the kitchen counter?

NG burns hotter.

Thinking about taking that same 40k each year and put it into an interest bearing account or other fund and let me work for me....if a property burns down...just bulldoze it and move on?

to protect before it makes sense to spend that money - compare that with how much you spend in annual insurance for the same property/equity (on the same FEAR - False Evidence Appearing Real - principles, just in case your property might burn down). 

“You see your honor I accidentally lit his couch on fire and it burned down the building, so obviously I owe them a new couch...”There should be zero mold.

Yes thank you @Briannan Burns I meant to say Mobile Home.

The market can be good to me, or I can get burned.

Your note on the 50K reinstatement shows that this would be a horrible idea as you essentially are burning Est. 50K to obtain a property and you'd still have 0 equity.