I bought #1 and am so ready to get rid of it. Granted, it's a vintage condo in downtown Chicago, in a prime real estate and social location, but I have spent the better of the last year and a half fixing and re-fixing and re-fixing the dining and living room ceilings from water damage. The windows leak. The ceiling/plaster is cracking. I completely gutted the kitchen. Had the bedroom ceiling replaced. Should re-do the already "updated" bathroom, but refuse to spend another penny. I love the charm and character....but after the headaches and the money spent, I'd take the modern conveniences any day. And as your family grows - or you simply take on more - you will need that extra closet/storage/garage space. It's becoming a major issue for me - and I'm a neat freak that doesn't hold on to random stuff. Once you get into that new place, you'll be able to add your own character and charm as you make this new house your home. Good luck!
#2 all the way. Closet space, more bedrooms, a garage, bigger lot and likely better resale value down the road. The other issue is that you are in a Heritage District which might dictate any modernization you might want to make and how you do it.
