I did not appreciate his sales technique and just hung up on them. 

I was curious if those who have used this technique for purchasing rentals have came across any situations where some one has done this and things went wrong with renters not paying or something happening to the property, just anything that might go wrong, and how I can protect myself from anything that might put my $401k in jeopardy?

These "wholesaling" techniques were taught on BP by others so it must be ok!

Here is an example:Find a deal at 50-60% of ARV, tie it up, utilize equity in another asset as a collateral assignment temporarily, spend 2-5% of ARV to fix up or retenant the property, then receive up to 75% of ARV back (cash out refinance) thereby "netting," you cash back ,  allowing you to acquire a property, and provide you cash flow (depending on your market).This would be a 0% down deal or negative down deal since you're getting cash back up to 75% of ARV.Yes you need collateral but, not necessarily since a more experienced individual with collateral or high net worth person could assign collateral on your behalf (perhaps a mentor).So by combining creative techniques, your own or assets of others, deal finding ability, and knowledge of the banking products and how to converse with bankers you could create and print money out of thin air (well you do have to invest your time of course).

The plan is to eventually refi this property with a conventional loan and cash-out to continue with additional property purchases.You're doing a very smart thing with the house hacking technique.

Have you or anyone else here ever used this or a similar technique to find property owners with lots of equity?

You will get everything from a glazed over look to stupid statements about the legality of techniques. 

No matter what, an investor utilizing these techniques will lose to a cash investor.  

What do you like for tools, techniques?

Figure out what you want - then figure out which approaches and techniques answer the call of duty respectful of solving those specific issues - then build a matrix between those and your strengths, predispositions, and limitations.