That was during the 08' collapse and the investor was heavily leveraged and the banks were calling in the more risky notes they had on their books. 

This concerns me as rates will most likely be much higher in 3-5 years and I will be heavily exposed to this risk. 

Price point and local transfer taxes are going to heavily influence this. 3% is typical where I am.

I can only speak on my area because I am heavily huntIng for deals in my backyard but would love to here input on Long island market.

PT's are penalized, but nearly as heavily as is the case in an IRA.

But I thought land contract (contract for deed) is illegal or at least heavily regulated in Texas?

It's a way to stick your finger in the air and guestimate whether the property is a good rental or not.A property free and clear or a property heavily leveraged will not impact that % rule thing. 

In fact, I'm betting heavily on it.

I invest heavily in the USA and New Zealand.Whilst NZ is expensive, and auckland where I am is every expensive, investing long terms till makes sense often.You can bank on 99% occupancy year after year.

But you have Hawkins Village practically right across the street which is notorious for shootings even though the police troll through that area heavily on purpose.