The smart play would be to build a two story wood frame structure on top of piers or concrete block in most cases. 35 feet is a pretty typical height limit in most neighborhoods, so depending on elevation you SHOULD be able to build two stories on top of the elevated foundation.

It seems like your ROI is basically the same in each option, but you are taking on a much bigger project to convert a single family to a four-family.So basic calculations, since we don't have a full financial picture, i.e. what does financing of each look like?  

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Welcome to Bigger Pockets Tyler!

The deal seems to pencil, but the bigger picture stuff makes me nervous. 

The bigger it grows the larger the potential for someone to cry foul, and the hammer comes down.

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The bigger the renovation, the more equity you will force but also comes with more risk. 

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If you want a city, Philly can be done if you know where the blocks break.