It is extremely difficult to recoup the full cost of your renovation when you go to sell, no matter how fantastic the result is.
There are a few things you can do however to increase the value of your renovation.
1. Score a great deal in the first place. This is challenging (but not impossible) now as prices are rising back to pre-boom values. Be ready to make an offer with your financing already in place. Better yet, cash is king.
2. Location, location, location. Find an up and coming neighborhood (just make sure you can handle living there while the area is in transition) or choose the crummiest house in the best neighborhood. You'll never go wrong buying in a popular neighborhood (or on the water).
3. Add square footage. Choose a project where you have the flexibility to add space to what is there. An extra bathroom, bedroom or living space will always add value to a home.
Home values are calculated based on a price per square foot within the neighborhood. More square footage equals more value. This is the single most important thing you can do to increase the value of your home.