The house now is right off of the main tourist strip exactly a block away and The reasonable market value on it is $147k.

Option #1 may be less painful:)

BTW, I will be blocking off the fireplace from actual use, so any ideas about what to do with the opening would be great too.

Yeah, you learn quickly how much the neighbors are invested in the future of that pretty, but abandoned building on their block when you do a project like this.

Once everything was figured out, I built this butcher's block countertop and installed the farmhouse apron sink.

I always hoped to live in a neighborhood where I could walk up the block and go to a bar and walk home when I was done, or pick up a baguette at a nearby pastry shop.  

I sometimes find myself chuckling over a home made contract, because I can tell how it reflects one bad experience the landlord had in the past and they are now trying to avoid future pain they have suffered in the past. 

I don't have much money in saving .I found a rare duplex/mother in law suite in my area 3 blocks away from my current residence.

Considering combining the half bath (guest bath) with the Master bath since they share the same wall and because Master bath is painfully small.  

Spend a lot of time walking up and down blocks till your familiar with the types of houses, prices and of course the problem areas of the city.