How to Budget for a Home Renovation: A Complete Step-by-Step Guide

Planning a home renovation is exciting, but building the budget can be stressful. With Australian homeowners spending an average of $63,188 on renovations and nearly 50% of all projects falling between $40,000 and $300,000, getting your budget right is crucial to avoid costly surprises and financial strain. This guide gives you a proven framework that thousands of Sydney homeowners have used to take control of their renovation finances and avoid those dreaded budget surprises.

Setting a renovation budget requires a systematic approach that accounts for both expected costs and Sydney’s notorious tendency for surprises. The key is building in enough flexibility while maintaining control over your spending.

Start by creating two lists: “must-haves” and “nice-to-haves” for your home renovation. Your must-haves should address critical issues like structural problems, outdated electrical systems, or non-functional spaces that directly impact your daily life. Nice-to-haves might include luxury finishes, smart home features, or that wine cellar you’ve always dreamed about.

I learned this lesson the hard way during my own Balmain terrace renovation. We initially wanted to do everything at once, but by prioritising the kitchen and main bathroom first, we could actually live in the space while saving for phase two. This approach also helped us learn from our mistakes and refine our vision for the remaining rooms.

Start by using our online calculator that has been programmed with specific prices for the Sydney area. You can even ask us to supply some recent case studies for your area, we would be happy to do so. If you are after a cost estimate and would prefer to speak to someone, give Jonathan a call today!

Labour typically accounts for 35-50% of your total renovation budget in Sydney, making it the single largest expense. Structural work, plumbing, and electrical upgrades come next at 20-30%, followed by materials and finishes at 20-25%. Kitchen cabinetry and bathroom fixtures alone can consume 15-20% of your budget, while council approvals and professional fees add another 5-10%.

Your funding strategy directly impacts your renovation scope and timeline. Most Sydney homeowners use a combination of savings (averaging $50,000-$80,000) and financing options. Common funding sources include:

• Savings: The most cost-effective option with no interest charges
• Home equity loans: Typically offering rates 2-3% above home loan rates
• Renovation loans: Specialised products from major banks with competitive rates
• Redrawing on your mortgage: Often the cheapest borrowing option

Remember to factor in the cost of borrowing when setting your budget. A $100,000 renovation loan at 6% interest over 5 years adds approximately $16,000 to your total cost.

A proper renovation budget breaks down every element of your project into specific line items. This granular approach helps you track spending and identify where you can save or need to allocate more funds.

Creating an accurate estimate involves listing every task, researching current Sydney prices, and adding appropriate margins. Use this structure: Labour + Materials + Subcontractor fees + Permits + 20% contingency = Total line item cost. For example, a bathroom renovation line item might include: Demolition ($2,000), Plumbing rough-in ($3,500), Waterproofing ($1,500), Tiling labour ($3,000), Tiles and materials ($2,500), Fixtures ($4,000), Electrical ($1,500), plus 20% contingency ($3,600) = Total $21,600.

Here’s a sample breakdown for a typical Sydney kitchen renovation:

• Demolition and disposal: $2,500-$4,000
• Plumbing and gas: $3,000-$5,000
• Electrical work: $2,500-$4,000
• Cabinetry: $8,000-$25,000
• Benchtops: $3,000-$8,000
• Appliances: $5,000-$15,000
• Splashback: $1,500-$3,000
• Flooring: $2,000-$5,000
• Painting: $1,500-$2,500
• Contingency (20%): $5,800-$14,000
• Total: $34,800-$84,000

You can minimise budget overruns by including a 15-20% contingency fund from the start and treating it as a non-negotiable part of your budget, not optional extra money. This buffer covers the inevitable surprises like discovering asbestos (common in pre-1990 Sydney homes), structural issues hidden behind walls, or council-required upgrades to meet current building codes.

Sydney renovations particularly benefit from higher contingencies due to our older housing stock, strict council requirements, and the complexity of working in densely populated areas. Properties in heritage conservation areas or those built before 1970 should lean toward the 20% contingency end of the scale.

The amount you should budget depends on your home’s value, the scope of work, and your suburb’s market dynamics. Sydney’s renovation costs typically run 20-30% higher than other Australian capitals due to labour shortages and higher living costs.

Financial advisors recommend spending 5-15% of your home’s value on renovations to maintain a healthy investment ratio. For a $1.5 million Sydney property (median for many suburbs), this translates to $75,000-$225,000. However, this rule has exceptions:

• Overcapitalisation risk: In suburbs with defined price ceilings, limit renovations to 10% of home value
• Growth areas: Properties in rapidly developing areas can support 15-20% investment
• Forever homes: If you’re not moving for 10+ years, focus on liveability over immediate ROI

The kitchen consistently ranks as the most expensive room to renovate in Sydney homes, with costs ranging from $20,000 for a basic refresh to $80,000+ for a luxury renovation. Master bathrooms follow closely at $15,000-$40,000, while living areas and bedrooms typically cost $5,000-$15,000 per room.

• New benchtops and splashback
• Cabinet door replacement or painting
• Updated fixtures and fittings
• Same layout retained

• Complete cabinet replacement
• Stone benchtops
• Quality appliances
• Minor layout changes

• Complete demolition and rebuild
• Structural changes (removing walls)
• Premium appliances and finishes
• Custom cabinetry
• Integrated smart home features

• Basic fixtures replacement
• New vanity and mirror
• Fresh tiles and paint
• Standard tapware

• Complete retile
• New bath/shower combo
• Quality vanity with storage
• Upgraded ventilation

• Luxury fixtures and fittings
• Freestanding bath
• Double vanity
• Frameless shower screens
• Underfloor heating
• Premium tiles and finishes

A home renovation in Sydney typically costs between $40,000 to $300,000, depending on the scope of work, with most homeowners spending around $80,000 to $120,000 for a moderate renovation. Kitchen and bathroom renovations tend to be the most expensive, averaging $25,000 to $50,000 each, while whole-house renovations can easily exceed $200,000 in Sydney’s competitive market.

These figures reflect Sydney’s unique market conditions, including higher labour costs (typically 30-40% above national average), strict council requirements, and premium material costs. Your actual costs will depend on factors like your suburb (Eastern Suburbs and North Shore typically cost 20-30% more), the age of your property, and whether you’re dealing with heritage restrictions or strata regulations.

Your renovation should enhance both your lifestyle and your property’s value. Understanding which improvements offer the best returns helps you make informed decisions about where to invest your budget.

Renovations are worth the money when they solve genuine problems, improve your quality of life, and align with your neighbourhood’s market values. Financial returns average 60-80% of renovation costs in Sydney, but the lifestyle improvements often provide immeasurable value through better functionality, energy efficiency, and daily enjoyment of your space.

Consider both immediate and long-term benefits. While you might not recoup 100% of costs immediately, quality renovations in Sydney’s competitive market often appreciate over time. Energy-efficient upgrades, for instance, reduce running costs while increasing appeal to future buyers.

• Minor kitchen remodel: 85-95% ROI
• Bathroom renovation: 70-80% ROI
• Deck or outdoor entertaining area: 75-85% ROI
• Energy-efficient windows: 70-80% ROI
• Garage door replacement: 90-100% ROI

• Major kitchen remodel: 60-70% ROI
• Master bedroom addition: 55-65% ROI
• Basement finishing: 50-60% ROI

• Swimming pool: 30-50% ROI
• Home theatre: 40-50% ROI
• Luxury primary suite: 45-55% ROI

In Sydney’s market, renovating typically costs 30-50% less than moving when you factor in stamp duty (around $55,000 on a $1.5M property), real estate fees (2-3%), and moving costs. However, if your renovation budget exceeds 30% of your home’s value or requires major structural changes, buying a home that already meets your needs might be more economical.

Rebuilding costs $3,000-$5,000 per square metre in Sydney, while renovating typically costs $1,500-$3,000 per square metre, making renovation the cheaper option for most projects. However, homes with significant structural issues, asbestos throughout, or inefficient layouts might benefit from demolition and rebuild, especially if you’re planning to stay long-term.

A gut renovation involves stripping a space back to its structural elements (frame, subfloor, and exterior walls) and rebuilding everything from scratch, including all systems, finishes, and often the layout. In Sydney, gut renovations typically cost $2,500-$4,000 per square metre and require comprehensive council approvals, making them suitable for properties needing extensive updates or complete transformation.

For personalised advice on your specific renovation project, speak to the renovation experts at Jonathan Homes. We’ll review your plans, discuss realistic budgets for your area, and help you avoid common pitfalls that catch out Sydney renovators.