If we do cross collateral, the loan amount is above 1MM.

As to your question, no, the loan officers probably aren't really going to like you if you have no assets (job, credit score, collateral, cosigner are assets).

Option 1:do we take that initial investment and purchase a couple of properties out right and rent them out and make a little money and use the proof of income and property as collateral to purchase more properties via traditional financing methods i.e. banks. 

Would you be willing to put up the equity in your properties as collateral for the new loan?  

You get a (insert name) mortage that covers your entire portfolio using the existing properties as equity/collateral and enough cash to purchase the new one.I own property X free and clearI want to purchase property y but don't have enough for down paymentI'm trying to avoid a withdraw from a 401kThanks!

Think about maybe putting one of your other rentals as collateral bringing the down payment to 0 or very little less.

Is hypothecation really only an option with private lenders or are there banks that would use notes as collateral as well?

Hello All,I bought a note (CFD) about 3 weeks ago and it boarded to my servicer as a REO; What seems to have happened is the hedge fund started forfeiture and by the time the collateral was sent to me, the homeowner had already received the notice of eviction from the court. 

All of my notes were done with re-purchase agreements.Another way is through the loan servicing agreement, it allows for the assignment of the note and deed of trust in the event of default and the servicer carries out foreclosure or acquires the collateral, sells the collateral and pays the par amount outstanding.

You have collateral, go see a bank about getting a loan to include the new purchase and rehab dollars.