Once I get my capital built up to $1M+, then I will probably start going after some large multi-units and may start leveraging with more credit. 

It seems to me, personal finance-wise, that once you have six figures to invest you're much better off figuring out how to better leverage that money than you are plodding away at your day job...even if it's a lucrative one.  

But we don't like too much leverage, so probably won't go for cash out.. the house was 3/1 with 1400 sqft

That's the beauty of real estate: Leverage

Leverage your experience as much as possible.

The original (highly leveraged) mortgage (and 20% HEL) recently converted to more conventional loans, and we are now negatively cash-flowing. 

Careful on the due on sale clause in your mortgage.Use your second as leverage; you can use your second as a down payment on another property, you can split the notes to have more leverage (second mortgage of $200,000 with notes of four fifty thousands or two $100,000 etc.My renter is interested in buying the place, and I'm interested in selling.

In New York City they agents have bypassed the mls by listing on this sighthttp://streeteasy.com/ It is just a matter of time when technology replaces the agents altogether 

Do that for 3/4 years and start with your rentals leveraging them and cash flowing 3/400$ and build and build! 

Still if you are leveraging the deal, then your ROI should be good with  acceptable risk.