@Ian ParrishYou've made some dangerous suggestions in your post (prohibited transactions) and I have to disagree with some of your comparisons.One thing I must point out is when you say: "However, if I made a loan to my buddy and my buddy made a loan to me, both for $25,000, and we paid each other back, voila!

The main danger of this type of lending is that if the stock market crashes and your LTV drops significantly as a result (i.e. you have a $650K LOC based on $1M in assets, the stock market drops 50%, your line of credit eligibility drops in half to $325K, so if you have loans out for most of your LOC they could call them due immediately or require you to add significant cash to your account to cover the margin of difference.  

CBRE assesses Harvey's impact on Houston CREHOUSTON (CBRE) – Fewer than 40 office buildings—4.2 percent of the city's stock—suffered damage from Hurricane Harvey, according to a CBRE (Coldwell Banker Commercial Real Estate) Report.

I have had fewer than 1 in 10 tenants even water the grass 1 time.

Most would probably consider the area a dangerous part of houston, but if you were to reference Zillow crime maps... it's in the green.

You might think that's never going to happen, if WCS never happened we'd need far fewer attorneys, contracts and courts.Again, I don't believe you're wrong overall, it just sounds like he is considering the WCS because he doesn't want to get knocked out of the game based on one bad event.  

I was considering Dallas but there seemed to be fewer options within my price range (getting into a duplex/triplex/quadplex between 150-175k).

That's the danger of only thinking you know the area.

Remember, that fear you feel is the caveman part of your brain screaming, "don't go out there, it's uncertain and dangerous!" 

But bidders who either hadn't seen the property in the last 48 hours, didn't read the newspaper or watch TV, were feverishly bidding on a house totally rendered into a pile of ashes.As I always say buying property/liens at tax sale is the most dangerous way of buying real estate, no home inspections, usually can't see the inside, no home warranty and no do-over.