Maybe I am over complicating this, but:

I am considering buying a second home that is adjacent to mine.  It would be a longer term investment.  I plan to use the garage to store collector vehicles and possible a granny flat.  

I own my first home free and clear.

How should I finance this?  Should I aim toward a primary dwelling loan, a VA loan, an investment loan?  etc?  Home equity?

It is a short sale, so I would probably need to be pre-approved to make an offer.

(80 days on the market, no offers, currently listed above market price by comps)

The current owner may possibly not be able to sell for reasonable market price and will let it foreclose. Property is currently vacant.

Thanks.

I think you're going to have a hard time getting a loan for a second property.  The bank is going to treat it as a rental property most likely and that will be a pain.  If you try a home equity loan, you are going to have to annex the lot and file to combine the lots together or the bank isn't go to go for it,

Best is pay cash honestly.

No home equity to buy the second home.  If anything goes bad, you could lose your home.

Just buy it outright as a primary residence.  Tell the mortgage company you intend to sell your current house.  

Just get a loan to buy it as a rental. It will be around 1% higher rate. Oh yea, and rent it.

Have you not learned that a home is NOT an investment?

i thought you were talking about a house in the mountains or at the lake,