I would really think twice about whether you need and can afford such a big house. Just because the plot seems cheap doesn't mean you have to buy it. Currently, there are three of you, even four would be a lot more than 200 sqm.
I understand that this plot + house is not everyone's dream, but I want to argue the other side. I don't think the property is that bad. If there is hardly any building land in an area, that can definitely be attractive. Others build terraced houses and are happy as well.
I would also not voluntarily put the kitchen and living room on separate levels. You have to go up and down stairs for every drink, every snack, and with children, don’t expect them to carry their plates or glasses back down by themselves. Everyone always praises the open living space because you’re not standing lonely in the kitchen – having a kitchen on the ground floor is the absolute opposite.
Why should the children eat in the living room? There are at most a few nuts to snack on, right? If necessary, you can also plan a dumbwaiter. How to connect living room and kitchen/dining room over two floors – I already gave an example. You just have to be brave enough to plan it somewhat that way. If you can afford it, it’s actually really cool.