You have a 1200 square foot home in a neighborhood of similar sized homes built just after World War II. The kitchen is teeny and barely functional for your growing family. Although seemingly a perfect case for remodeling, you first might ask yourself if it would be more logical to move.
The first bit of information you need to know is the current market value of your home. Most real estate agents are willing to make this assessment free, with the idea that it establishes a relationship with them that may lead to a listing for them if you find it more practical to move. The agent will come out and make an evaluation of your home and its location. Ask the agent for "comps" or comparable sales prices of similar homes to yours (post-contemplated remodel) in the neighborhood. Add the real estate agent's estimated value of your home plus the cost of remodeling. If similar homes sold for less than this figure, you may be putting too much into the home without the hope of recouping the cost later on.
Most remodels do not make up the investment immediately, so if you are thinking of moving soon, or if your personal life or financial situation is currently ambiguous, you may want to hold off on making such a serious decision as remodeling. If you are thinking of changing your kitchen or your bathroom, know that there will be long stretches of disarray and confusion in your home that can cause tension. Consider a rental for the time of the remodel if you are able, and figure the cost of "out of home" time into your remodeling budget.
Once you have a "comp" figure for similar homes in your neighborhood look around for the kind of home you would like and compare the prices. Often the house you need is there for the same price as your "comp" plus remodeling fees. For example, if your three bedroom home is "comp"ed at a current price of $500,000. Remodeling to add a new master suite has a price tag of $100,000. You may be better off looking for a four bedroom home for $600,000 already on the market.
Always keep an eye to resale when considering remodeling. Although the hot tub in your master bedroom seems quite lovely to you, others may find it a hazard. Try and ensure that what you do to your home is real added value, rather than a whim that may not be attractive to others.