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To me, if you have kids it's a complete non starter. You need more space than that.
I am in what I consider the most comfortable house size/layout for my lifestyle pre and post kids. 1800 sq ft, 3 bedrooms. Plenty of space for guests, hug kitchen and living room area to spend time in and for hosting, and then a second family room downstairs setup with the better home theater for watching movies, football Sunday's, and some nights where I want to watch The Wire while my wife watches the housewives upstairs. And the 3rd bedroom is an office for when we work from home (about 20%) of the time combined. It's perfect. I see no good coming from living on top of your spouse.
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