Question on a basic principle

[Nick Brubaker]

The 2017 Cost vs. Value Data (http://www.remodeling.hw.net/cost-vs-value/2017/) shows that aside from the installation of attic insulation for no other home improvement project are the costs invested able to be recouped upon the sale of a property.  An average of maybe 65% of the cost is able to be recouped in most cases.  This is a basic principle that I am confused about.  If it is the case that money invested into a house through renovations, additions, etc. is not recouped fully or more in a sale than how do flips or any kind of renovation pre-sale (aside from insulation) make sense.  Why would I put $60k into a new bathroom if it only adds $30k of value to the house (https://www.nari.org/assets/1/28/Remodeling_Impact...)?  Similarly, all other factors excluded, would this mean that if I bought a house for $200k and decided I needed an additional bedroom it would make more sense to sell the house and buy a different house for $260k with the additional bedroom than spend $120k to add the bedroom to the house I already own?  

Have I been misguided in assuming that flips and renovations are possible because the costs invested plus an additional margin/profit are to be expected upon sale?  I get the idea that if renovations that you desire are done on a house you live in long before you plan to sell it you are able to enjoy the improvements for a period, which makes up for the inability to recoup the costs fully on a sale.  However, why does it make sense to do work to a house before selling it?  Or why does it make sense to buy a house that needs work with the expectation that you would pay for renovations afterward when the returns in actual value/equity are not comparable?

Does this make sense?  What am I missing here?

[Tom W.]

@Nick Brubaker

You’re not taking into account the fact that you need to purchase a distressed property at below market value when you flip. Your profit will be made when you purchase, not when you sell. The amount you invest in repairs or upgrades will be based on what the value of the property will be after the work is complete.