I am in love with this house, even in the modest state it is in now. Love the character of the house, especially the sandstone walls, the floor layout and the position of the lot. I am thinking it would almost be a crime to build a second floor. So in working with what there is this is what I would do. (Sold $1.1M)
So the living room might need a splash of colour, say something like this coffee table. Oh, and I would paint all the wooden floors a glossy black.
So maybe a dining room like this would be good, with the rug under the table.
The living area would work better like this.
The kitchen would be better like this.
Then for the courtyard, it would be good to paint the fence white and put a table like the below in the centre.