Don't mix the funds from the two up.2 - There's a disconnect in what and how you are getting the 20% for the DP from your tenant/buyer. 

I have funds for a down payment, but decide to borrow the downpayment and hang on to my own funds as a reserve fund.

I recommend snowballing when you have a 6 month emergency fund in place and can easy pay all of your monthly living expenses.   

We do not want to physically collect rent, especially cash which we would not desire the tenant to send through the mail. 

No doubt, this property will generate great return. 18%ROI - We bought it for 32k+17k Reno; all in for $49k... in a very desirable neighborhood.

In most areas, yes....not traditional hard money, but a Transactional Funding Lender.....1-2 points for a same day closing.

With only 10K the fasted way is like to drastically modify your life style to embrace the frugal and save every penny going forward until you have enough for a DP, closing costs and a reserve fund. $10K after closing costs and holding back a reserve fund will leave you about $5K for a DP.

At the second auction I got outbid by a New York hedge fund.

I would like to  have the funds secured (loan) and readily available for the first opportunity that is available.

They have put quite a bit of rehab into it and our out of funds,  They are asking for a 50-100K 6 month loan and are offering generous interest.Myself and two other personal investors want to commingle our funds for the loan and share in the interest on a proportional basis.