All of them have Sevierville addresses, so the Sevierville dot on the map is a little deceiving as far as actual cabin locations are concerned. 

My concern is that my rate is 5% and current rates for investment property is closer to 6% now.

My main concern is to protect the assets of my private lender, I need to look further into this due to them possibly having to be on the loan and would like to avoid that due to them possibly being caught in a litigation dispute down the road.

Buying a property and renting it out (option 2) is not likely to cash flow enough to really concern yourself with saving on your rent; not right away anyhow.   

We figured that chances were very low of encountering a burned down condo or one with extreme structural issues.

There are ways to get started with out this solid base but the chances of success is extremely low.

Also, I'm sure the bank is going to be concerned with the leases expiring immediately after closing.So, what is the preferred way to get new leases according to my terms prior to closing, and keep the bank happy?

One concern with a 401k loan is if you were to get laid off or fired it would have to be paid back immediately or you pay the ~10% or whatever it is penalty plus taxes.

I've read here about some hard money lenders that will lend 90% of the purchase price and 100% of the reno, but I'm also concerned about points. 

Our multi-family inventory is indeed extremely limited.