I've been working for home coming up on 15 years, it's one of the greatest blessings in my life.
My kids are now 9, 13, and 15. I've rarely ever had to miss a school play, a game, a conference, a party, or just about anything my kids were involved with. I'm right around the corner and it's really easy to work up until 10-15 minutes before something starts and get over to the school or field and catch it. I'm able to help my kids and my family whenever they need something, I get to know my kids friends, I'm a much bigger part of their life than I think I could have been had I worked in the office. I have about 9 more years until my youngest is out of school and pray all the time that my job lasts until then.
In the beginning there is definitely a huge adjustment period, for you and for your family. First, you have to find a balance between discipline and taking advantage of working from home. It's nice that I can run out and do things or take a break and pop on the Eagles game I Tivo'd last night, or whatever else. However, I can't get lazy and the work has to get done. On the other hand, sometimes it's hard to turn work off. It's easy to leave my laptop open while cooking dinner or watching tv at night because I'm kind of still at the office. Everyone is different, every job is different, but it's best to set up some structure for yourself and really good for your family if you can have a definite demarcation between work time and home time, even though your office is in the home.
Second, your family needs to understand that when you're at work you are at work. The kids can't be screaming, even in another room, when I'm on an important business call. It doesn't matter how bad that diaper is and the doorbell is ringing, if I'm working a deadline it's not my concern during that time. And most difficult if you have kids, it's hard to be in the middle of a really stressful day and you're on the phone in a contentious meeting or even a business argument and 10 seconds after you hang up your little girl comes and sits on your lap and you have transform instantly into daddy mode. It's easy to take work frustration out of the "office" right to the dinner table.
All of those things we worked out in the first few months, 6 months in it was a pretty well oiled machine. I had a dedicated space and closed door meant closed door and daddy is working. Also, I had to make a conscious change in my thought process when leaving that office room. Once you establish some structure and some discipline for you and for your family it can be the greatest thing in the world.
Years later everyone is used to this, it's all my kids have ever known and I'm much better at it. I can sit in the living room and work during the day or in the kitchen, get my work done while everyone is moving about me in their every day life but then go close the door for a meeting or if I really need to bear down and work through some difficult code or something. Once you get into a groove you'll never look back.
In addition to the regular time I've had with my family we got to travel the country for over two years in our RV because of this job, before that we were able to take month and two month vacations in the summer in our RV. We've rented a house somewhere nice in the winter for a month (when homeschooling). The flexibility you have is ridiculous. I've worked from the beach, from 100's of campsites, from libraries and Starbucks'. As long as my mifi works I can work. These last 4-5 years we really took advantage of it.
I don't know what my future holds but if my company endures and I'm still working here when the kids leave I picture spending a few months in Europe or somewhere tropical each year. Just rent some space for two months, work like normal, and enjoy the rest of the time someplace interesting and new.
I think the only drawback is definitely the social aspect. I do miss going out to lunch once or twice a week with guys at work, playing in the office NCAA pool, etc.. On the other hand when I'm in a mind numbing, want to smack my head against the wall meeting I can push mute while I click around on the internet or make a sandwich, or whatever. The trade off to me is worth it. I get a ton of social interaction through church, friends in the community, and sports/scouts type stuff and that more than compensates. If work is your whole life and you don't do much outside of it, you'll probably hate working from home.
Also, if you don't have a good relationship w/ your wife it could be a problem. I have a great marriage and enjoy being home. My wife is supportive and understanding so I don't have to worry about her taking advantage or nagging or whatever else. When we have issues with home/work balance I can talk to her about it and deal with it. If I didn't have this I could see things getting out of hand quickly.
I agree about your health. I'm 43 and years working at home are taking their toll. I'm working now to radically rectify the situation and get healthier. There are days when I just don't move much. I get up, I work, I grab the kids at school or make some dinner, crash and watch a movie or something, and then go to bed. That's unhealthy enough but if that day doesn't include walking around the office a bit, walking around getting some lunch, out to the parking garage, stopping at the store, etc., etc., it will catch up to you. It's caught up to me and I'm making changes now, scheduling work outs, taking the dog for more walks, eating different. Also considering grabbing a treadmill on Craigslist and doing a 1-2mph walking desk for an hour or so a day. Definitely factor this in if you start working from home.
In general the quality of life it has afforded me is beyond any monetary consideration. I've had a few job offers over the years, one specifically making 50% more than what I was making at the time but it involved an hour plus commute, the work clothes, the office politics, and most importantly, an extra maybe 3 hours a day in addition to time during my work day away from my family. The decision to turn that and other jobs down was easy.