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Ryker,

I cannot imagine living in part of house while the rest undergoes a complete gut and remodel, especially when the house starts as "small."  Noise, dust/dirt, scheduling and critical path, etc.  What will having to call all the trades back to do a second section add to the costs and schedule?

One of the "not so big house" series shows a **really** small unit that was built for the owner to live in while the main house was built. 
Or maybe a detached garage with an apartment above. 
A SIPs garage with the car doors to be retrofitted later but used for a cottage now.
A Katrina cottage. 

Man, there has to be a better choice and still stay where you are.

Good luck,
Larry

Ryker,
I'm not sure that I would agree with you about the remodeling option being cheaper that new construction.
Your description of the house fits a lot of homes I have worked on over the years. Invariably, we find undetected problems that must be addressed during the remodel. This added expense generally makes the final costs equal to or greater than new construction.
Obviously, every situation is different, but if your home has no outstanding features, is 25-50 years old, and was built as a lake (second) home, the odds are that your first step should be call in a bulldozer.

Please don't mince any words Wes!

I can't make an 'informed' opinion w/o much more info. But, I always like new construction(SIPS or ICF's, obviously!).