The Dallas market is getting really hot, and we're having difficulty getting something under contract (SFHs, duplexes), though we have been close twice.One pattern I'm starting to see emerge is folks waiving their inspection contingency to get a competitive advantage.On the bank owned duplex we bid on it was required up front, and we did it with some misgivings after getting our contractor in there first.

@Jay Hinrichs You're absolutely right about owning low end properties and have capital ready at all times for expenses: HVAC goes dead, vandalism, plumbing emergencies..etc.  

Do you have 6 months worth of reserves in case of emergency?

Within a few months over 50 new reits emerged and the hedge funds stepped in and single handidly took the real estate market out of the ashes.

The point of a 3x the rent requirement is so that even if there is an emergency, the tenant will still have sufficient funds to make rent.

From there, I would do as @Chris Clothier recommended and build capital for a future quality purchase + emergency funds for the worst case scenario.I have plans to meet with a friend in San Diego on Friday to discuss his plans for investing as he is just starting out as well.

Look to the future for what "ifs" like fixing shower tile or going with surround or corian sheet where future cost can be controlled and no emergency thinking needed.

Do you have a different cash emergency fund?  

I keep a large emergency fund in savings, and the interest it has earned in the last 2 years (0.75%) doesn't even keep up with inflation.

Would the best plan be to take all of the rental payment and put it towards mortgage (after saving a set amount for repair emergencies and or vacancies of course) so we can pay them off more quickly and have retirement monies at 65?