We live in a decent size house, but the bedrooms are small. So when I found out I was pregnant with #4, I had to make the most of the space that we have.
Since I found out I was having a boy, and the baby was going to be sharing the room with my daughter(4), I knew that I had to let her make some decisions on the changes, so she wouldn't feel like this was no longer her room...but now a shared room.
Lo and Behold - my daughter loves two colors - PINK and BLUE! She had pink walls before, so SHE made the decision to change the walls to blue. We spent about 2 hours at Home Depot going over all the different shades of Blue - and fell in love with this beautiful soft blue that is not baby or boyish...but perfect. I offset the blue with some shades of brown, tan, pink and white.
Items in the room are from various places - Etsy.com(inital blocks); Pottery Barn(daughter's bedding and crib); Bellini (dresser/changer); Home Depot (paint and rug); Boppy (crib bedding); Petit Tresor (elephant picture on wall); Zulily.com (picture of soccer ball); eBay (knobs for daughter's bed); Anthropology (knobs for dresser); Ace Hardware (handles for the closet); Home Goods (baskets in closet and under bed for diaper and shoe storage - not pictured).
My daughter's bed is my favorite - it is about 15 years old and is the bottom bunk that my oldest son used when he was smaller - it's still in great condition and I just 'girl'd' it up by adding crystal knobs on the 4 posts.
Best advice I can give is: To not let the older child feel like they are being replaced, but that they are now 'sharing' their space.