Is it common to purchase a home with other debt?

You state that you have 20% - 25% equity position for safety, but you don't based on the information you gave. 

Learn to control your spending and pay off debt.

If I create a debt fund that offers 9% interest on first lien notes with a 5-7 year payout, would that be attractive to high net worth investors?

Your debt is easily found, I suggest you disclose the loan. :)

Eliminate debt, establish a budget, and save.

If the answer is yes, then it's a no brainer to make minimum payments on your 2.8% interest rate mortgage, and use the funds that you would have paid extra to pay it down faster, to either invest in more real estate, the market, or anywhere else where you can get a ROI > 2.8%.If the answer is no, then feel free to aggressively pay it down as fast as possible, to become debt-free faster, and just have a large amount of money in savings or to splurge with.The bottom line is that your 2.8% mortgage is GOOD debt.

Based on what you've told us, your rate should be at prime (7.5%), unless you are over 80% LTV, then it would be prime +1.Jeff

I mean myself and any bank would need more details, but if you utilize that large sum as a downpayment and have a small mortgage, wouldn't you easily qualify for the debt to income?

I would apply the cash flow to pay down the debt and hope to have significant passive income (or equity to put into something else) in 10 years.