As Millwork stated. If that is T1-11 I would get rid of it first.

As far as stone. I would go to the bottom of bedroom windows. Then use the door as a break and the rest between the garage and door level with the bottom of the living room window,

I have an intirely different view about wherther T-111 should ice the deal. If the place had solid wood log,shake or drop siding,chances are you wouldn't feel the need to do anyhing additional.but rock could add caracter to the existing siding. Wherther one is adding shrubs or rock to the front of a house,creating a mustache just isn't right. So the first question to ask yourself is if you can afford stripping it to studs and starting over. If the answer is yes,I agree there are better choices than 4x8 siding. If you want bang for the buck,I believe it make's sense keeping present siding if it has life left.

Looks like a coastal location (palm tree in front bed) and likely Florida--
I find there are very few older FL ranches with stone added to them...
it just isn't a design choice that works with a Florida or really any coastal location...
There are afew--maybe 5 out of 200 or so--homes in my 80's ranch neighborhood--single stories, tile roofs and cement block exteriors....some people have added brick or rock facings to "modernize" the look of the house but most of them just don't work IMO--
especially if the roof is really low--like this one--
I think you could enhance the look of the house better with other choices---

A waterline of rock will only make the low house look lower. I'd not go there. Your money could be better spent elsewhere.

The comments about not adding stone to a low house are "right on."This move is equivalent to putting a "fat " lady in a horizontally striped dress! You will get more for your money if you do something to porch and landscape - only for thought.