Function: Enhancing safety for your children is a primary concern for you, and will be for future buyers with growing children so either solution could work to solve that issue.
Value Vs Cost: Most home improvements people invest in rapidly depreciate. Cost vs value reports show that to be true about replacing windows, remodeling kitchens, updating baths, installing a deck or patio, etc. The best return on investment is in enlarging living area of the inside of the home adding permanent value to your home, which appreciates with the market. So if you can add 80 sq ft at $125/sq ft and the appraised value is $175/sq ft you are enhancing your equity position now. If the market goes up 5% in the next couple of years that added value would be about $183/per sq ft.
Financing: If you don't have cash to do the larger project a good financing option could be an FHA renovation lending refinance of your home called a 203K. I have been involved in several fixer upper home purchases, and these projects have helped my clients build equity rapidly. Over time has gotten even better for them. With a 203k loan the bank refi's your existing loan, funds an escrow account for contractor draws, conducts reviews of the contractor plans, and does two appraisals (As Is and As If improved to your plans) to ensure the project is cost and value justified. The combination of that structure helps you avoid mistakes in doing projects that don't have a positive return on investment.
Scope of Work: Before you undertake either project consult a professional who can help you determine what modifications are accommodated by the load bearing members of the structure. Scope creep is something that can be avoided if you do this first when planning a structural modification. That can help you determine what you can afford whether you are self financing or borrowing funds for the project. Under the 203K loan contractor process it is much more difficult for the contractor to over-estimate cost or expand the scope of work. There are cost consultants that can help validate the work, plans, contractor proposal cost vs fair market cost of labor and materials in our area.
Hope this helps.
RE/MAX North Star
43130 Amberwood Plaza Suite 125
South Riding, VA 20152