Look at the amount of budget that you can spare. You also have to decide whether your local authorities have any rules regarding installing fireplaces. Also check with your insurance company whether they cover fireplace accidents. Most regularities will want you to take the help of a professional while installation.
Choose a space where there is enough traffic for the fireplace to be an effective heating device. However if you are doing it for the decoration reasons, then warmth might not be in your considerations. It is on you to choose the living room or the bedroom. If you are going to use logs, you may also have to arrange for a shed or a store to keep them.
Determine the type of fireplace to install:
Fireplaces come in three main categories; wood, gas and electricity. The wood one needs a firebox and chimney installed. A gas fireplace needs venting space and a gas line. The electricity fireplace requires an electric connection of course. All three have different benefits, prices and installation requirements. The electricity one has an edge over others because it can be operated without heat and with heat. That means if you do not want the warmth, you can just operate the fire effect. You will need to do a lot of local market research before deciding one.
There are wall mounted fireplace models available in the market that save you from sacrificing floor space. However, this way you have to give up on the dreams of lodging and lying down in front of the fire.
Hire a professional to install the kit, unless you are very good in such things. Go through the tips in the installation and maintenance manual. Once done, decorate your fireplace. Choose a mantel that goes with the room theme. You can use candles and picture frames to accentuate the ambiance. A rug and cushions in front of the fireplace will make things perfect.