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Never underestimate the sheer PITA factor of your local building dept. they will put up many roadblocks and have their hand in your pocket at each step of the way. I just built a shop with finished space upstairs (~750SF).
You will have lot coverage limits. SF/Acre
You will have limits as to height, especially if you will block existing views.
You will have to include fire sprinkler system in all new construction. Expect to add $30K+ to the price of the build for what you are describing.
You will need to mitigate any existing foundation/structure to meet new seismic standards if you want to add the second floor.
You may need to re-do your sewer connection and water main in a 60 year old house.
You will need to pay everybody: traffic impact fee, sewer upgrade fee (based on number of bathrooms), school fee, parks fee, construction tax, plan review fees, and all the other building permits. I would expect 25-65K for all this depending upon where you live.
You may be better off, as was mentioned, to do new construction from scratch. Ask a builder who works in your City what the differences are between a one-wall remodel and new construction. Ask the same question of the building department. Keep in mind the Building Dept's goal is to maximize their pension plan...er...fees
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