I have asked my wife to try the calculator at www.remodelormove.com too.  It will be interesting to see how similar or dissimilar our recommendations are.
 
Regardless of what we decide I have completed a bit more research. I visited the city website and downloaded the permit requirements and zoning regulations.  Is it legal to add the 2nd story like I planned.  
 
Since I have a pretty good idea of what I want when we remodel it is straight forward to look through the requirements and determine if it is legal.
 

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Since we live on a corner lot we have an additional restriction which is not to encroach on the side yard.  
 
Our plan is to add a 2nd story and move the front all forward about 4 feet to make room for the staircase.  So I checked with the requirements for front yard depth, side yard and corner requirements. It looks like our plans are OK. Then I checked on restrictions for maximum home area and set backs for the 2nd story.  Our ideas for the 2nd story have ample set back from both sides so we are OK on that front.
 
RemodelOrMove.com: 101 Ways to Save Money When by by Dan Fritschen Also in regards to maximum home size we are OK. At about 2400 sq ft after the remodel it seems to fit all the requirements!
 
OK, it seems to make more sense to remodel than to move.   It seems like our ideas meet the city requirements, so I guess next comes developing some sketches and finalizing our ideas.
I have done a fair amount of design work so I am pretty comfortable with this sketch phase.  For most homeowners this can be a bit scary but I think it is good for everyone to spend some time considering the options.  This will help you be better prepared when you meet with an architect, home or kitchen designer.  You don’t need anything fancy just graph paper, a ruler, pencil and tape measure.  Measure the dimensions of your home and then sketch it out.  Make 50 copies of this and start sketching in the options. 

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If you have no idea where to start – it is probably worth hiring an interior designer or an architect to meet with you and give you a few tips to get started.
 
Our idea is to add a 2nd story with 2 bedrooms, a bathroom and a family room. Downstairs we will add a few kitchen cabinets, change the current family room into a dining room and convert one small bedroom into a laundry room. I have always wanted a big laundry room with shelves and cabinets for each family member..so clothes come out of the dryer and can be put away immediately in these cabinets…If anyone is looking for anything they know where to look!  Plus i hope it will eliminate all the wrinkles from dumping the clean clothes in a basket and then letting them sit for a few hours or days before getting folded and put away..I can dream cant I?
 
More to come in To Remodel a House #3