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So you have decided to renovate a house just like everyone on TV! Hardhats, sledgehammers, dust masks! My first advice to friends and relatives that ask me about renovating their homes is NOT to do it. Let me explain why..I feel that I am somewhat qualified to give this advice. Because,I have done quite a lot of it. I have acted as my own contractor, I have hired a contractor, I have been the contractor. I have the scars (mental & physical) to prove it.
My reason for advising not to do a renovation or more correctly a total gut and renovate is because of the expense and headache. Additionally, I would like to offer a rule never to be broker: DON’T LIVE IN A PROPERTY WHILE YOU ARE RENOVATING. I have found that the mental strain and potential strain on your relationships at home to be something to be avoided, especially if you need to maintain a career in addition to the renovation.
Here are 3 basic scenarios when considering a home purchase:

NEW CONSTRUCTION: PAY BUILDERS ACTUAL COST PLUS PROFIT MARGIN

The first scenario is where you buy a new house. Easy right? You pay the builders actual construction costs plus his/her profit. You may have the ability to choose some of the design elements and possibly the configuration of the house.

BUY EXISTING HOME AND MAKE COSMETIC UPDATES

The second scenario is where you buy an existing home that is 10-60 years old. You make some updates and improve functionality with a wall removal/addition and paint/landscaping improvements. By buying an existing house, theoretically are able to discount the materials (depending on the market) and do not need to pay full price for the materials.

PURCHASE EXISTING HOME, DEMO & RENOVATE

The third scenario is a complete gut (demo) and renovation. This is quite a risky maneuver because you will pay actual cost for the demolition and actual cost for the renovation. Inevitably, there will be more repairs than you expect (I tell people to double their budget and to double the time frame).  Various pitfalls exist regarding working with contractors. One main way that a contractors price increases is with “change orders”. As soon as additional repairs surface, some contractors start increasing their quote and because they have already started the project you are not likely to shop their price around.
These are reasons to try and make your existing home configuration work or to seek existing houses for purchase. This is assuming that you have a finite budget with which to work. If your budget is not a concern, variation from this advice is understandable. This article is basically to give some insight to the realities of renovating a home and hopefully to avoid overestimating what can be obtained with a finite budget before deciding to take on a large project.
Here are a couple of diagrams to illustrate what percentage of additions might possibly be recouped upon a sale:
Midrange renovation costs recovery stats
Upscale renovation costs recovery stats