An addition to a house entails permits from the city, inspections and not to mention very costly. Way better to expand into a bedroom. Always check with the city and tell them what you're doing even for a small expansion. You will probably have to pull permits if you're going to add electrical, plumbing, etc. You'll still be adding to the value of the house.

A 2-story addition is extremely expensive and not always feasible, depending on your present architecture. It would be far less expensive to expand into one of the bedrooms.

However, before you do that, consult with local real estate agents in your area--if you add on to your home or update beyond it's actual worth (should you decide to sell later) you will not get the money back OUT of your house that you put INTO it. That should always be a consideration if you plan extensive remodeling like this: will you ever be able to get the money back if you sell? Many people decide to add on or remodel, then find out later that they can't get their selling price.

I have a 5 bedroom house with three bedrooms upstairs and two down. The master bedroom is nothing special right now, only slightly larger than the others. The master bath is also quite small. Would it be better to add on to the house to make it a master suite or is it better to expand into one of the bedrooms upstairs?