It would cost a lot to get the planning approval and do a complete renovation of the 2 units.Can anyone suggest what would be my options at this point?

Since the mortgage rates have been higher than previous years and the inventory has been lower I'd recommend looking into multi family options that are currently cash flowing in areas that values are increasing.

Also, I've always wondered why arbitragers don't negotiate an option to buy upfront?

It would be our preference to invest in upstate NY because we could drive there relatively easily, but if there are better deals elsewhere, we would be more inclined to go with option (1).Hi Bethany, if you're investing in NY, unfortunately the price range is crazy high and you won't find any cash flow.

Still, I think you'd find it difficult to find one that would be a good long-term investment unless you had another ~20-30 years to go, it's at least cash neutral, and you don't plan to hold it too long (to avoid too much investment loss and before you get to the point where it's unsellable because of too few years left); that's another way of saying that maybe it suits your cash needs in the near-term or is at least less of a pill to swallow than other options until you find something that's more of a sensible long-term play

I do agree with @Jules Aton though, the best option may be to wait and save up for your down payment.

A company adding more options to a plan instead of trying to Nickle and Dime me with upsells.

Lastly, your investor agent should have access to off-market, pocket listings, fsbo, and many more deals that you can't find on-market! 

If you ever need insights on financing options for rental properties, including DSCR loans to scale your portfolio, I’d be happy to help.

I would like to find a way to generate additional income and am exploring options other than having a long-term roommate.