We did a homemade elf with our children last year. We made the elf from an old tradional wooden doll thing that I picked up in a charity shop. We really did it because as our children were a bit older we thought it might be the last year that they still believed, and we thought it might be a fun magical thing to do.
Because the children were older, we changed the story a bit to make it more believable. They never saw the elf, but he blogged, with photos each morning, and sometimes left a gift or a mess! They did love it, especially my eldest who was 8 at the time, who really bought into the magic of it all.
We detailed all his adventures on the blog below:
gingerbreadglittertoes.blogspot.co.uk/
It was really hard work to keep thinking up new ideas, but it was quite fun for DH and I to work on a silly project together.
It was a one off, and we won't be repeating it though. I think done every year it would lose it's magic.
I've kept the elf dolly, and I am intending to print off the blog, and pass it on to our children when they have children of their own.