No, in the end, the financial payoff has to be worth all the chaos that you are living through.  I love the projects (especially in retrospect) but it is the financial payoff that makes it all worth it.  Let me walk you through the financials.

1)   Buy right - First and foremost, you should obviously buy the house at a discount compared to those other houses that are similar but are in good condition.  This is so important.  Do not fall in love with the house yet!  The lack of updating, neglect and deferred maintenance all need to be accounted for in your price.  There is an old adage when it comes to buying fixer-uppers - "You make your money when you buy, not when you sell."  What does this mean?  It means that you need to be smart when you buy your house because the market will determine what the house will be worth when you sell it. 

2)  Factor in Appreciation - Even with the downturn in the real estate market, there are neighborhoods that will continue to appreciate nicely. This is where buying right will pay off as well.

3)  Consider Capital Gains - Our capital gains laws have changed from what it was with our parents.  It used to be that you had a "one out", meaning that once in your lifetime you could sell a home without paying a capital gains tax.  Now, they have changed the law so that basically if you live in a property for two years, you can sell it without paying capital gains.  Obviously, I am not your accountant and this is a very cursory explanation.  Please consult your accountant as to your specific situation.

4)  Do the right work - What things will cause your house to enjoy the greatest gains?  Kitchens, bathrooms, fireplaces, decks, etc., all play into causing your house value to rise.  But what is the right combination?  And do you need granite in that kitchen or will laminate work?  This is where you need to consider resale and what you want for your return on investment.  My experience is that having the right person to advise you will be worth their time in gold.

5)  Sell right - Now that you have your house done, it is important to market it correctly.  Getting your house in front of the right people is what it is all about.  Things like staging, open houses, and advertising get the people in.  Make sure you have the right realtor to make sure you actually close.

So let's do an example:

You decide to buy a fixer upper house for $200,000.  Your realtor feels that it could probably be worth around $245,000 if done right.  Your research shows it will take around $15,000 in materials and labor to get you to that level.  The neighborhood is good and historically appreciates between 5% and 10% per year.  What would be the expected profit if you fixed up the house and sold it in 2 years?

Let's start with what the finished price will be when it is all done.  The realtor expected the house to be worth $245,000 today if it was done right.  But there are two years of appreciation to add to that as well.  Let's take an average of 7%.  Factoring in appreciation would put the sales price at about $280,500 in two years. 

Now we can back the expenses out.  You guessed $15,000 in materials and labor and also consider selling expenses.  Selling expenses are something that are negotiated between the seller and the agent (if you use an agent).  For the example, let's use 6%.  And because you held the house for two years (and checked with your accountant), you are not going to pay capital gains. 

So after backing out all these expenses you end up with roughly $48,200 tax free.  This could be high if your property doesn't appreciate as well or if you found additional problems, and thus, additional expenses.  It could be low if you come in under budget or if your property appreciates better.  And what is the worse case scenario?   You live a little longer in a great house that you can take a lot of pride in. 

I have yet to find an investment opportunity that is geared more for normal, average income people than fixer-uppers.  In a financial environment where the system is tilted more and more toward wealthy investors, fixer-uppers allow the person who is willing to work hard and smart to gain from their labors.  At the end of the day, I think you will be proud of your work, you will have done well financially and you will have benefited your neighborhood greatly.