Buy vs rent guide
Scenario analysis for a buy vs rent decision
No one can say what home prices, rents, rates and returns will do next decade, so a single buy vs rent number is a story about one possible future. Scenario analysis replaces it with a few complete stories, so you can see how much the answer depends on which one comes true. This guide builds three and reads them.
What a scenario is, and what it is not
A scenario is a coherent bundle of assumptions that tell one story: for example, prices grow slowly, rents grow slowly, and renewal rates rise. It is not a prediction and not a probability. Its job is to show how the result behaves if that story holds.
That differs from a sensitivity test, which changes one input at a time (see sensitivity analysis), and from the Monte Carlo view, which draws random variation around one set of assumptions. Scenarios add the thing the others skip: inputs that move together for a reason.
Three stories on one base case
The fixed part is the usual illustrative base case: a $600,000 home with 20% down, a 4.5% starting rate, a 25-year amortization, five-year term, $2,300 monthly rent, 2% inflation and a 10-year stay in Alberta. The scenarios change appreciation, rent growth, the return on the renter's investments and the renewal rate. All numbers are planning inputs, not forecasts or market data.
| Scenario | Home price growth | Rent growth | Investment return | Renewal rate | Buyer minus renter | In today's dollars |
|---|---|---|---|---|---|---|
| Cautious for the buyer | 2% | 2% | 6.5% | 6% | -$142,194 | -$116,649 |
| Middle | 3.5% | 3% | 5.5% | 4.5% | +$41,686 | +$34,197 |
| Favourable for the buyer | 5% | 4% | 4.5% | 4% | +$215,470 | +$176,761 |
Making each story hang together
A good scenario is internally consistent. The cautious story combines slow price growth, slow rent growth, strong investment returns and a costly renewal. That is a world where renting plus investing looks good. The favourable story is the mirror: strong price growth, rising rents, modest investment returns and a cheaper renewal.
Two traps to avoid. The first is mixing optimistic and pessimistic pieces by accident, such as high appreciation together with low rent growth, which is rarely a story anyone can explain. The second is putting all the conditions in the buyer's favour and calling it the middle.
An extreme pairing is still worth seeing. When appreciation is 1.5%, rent growth 2%, investment return 7% and the renewal rate 7%, buying finishes behind by $213,117. When appreciation is 5%, rent growth 5%, the return 4% and renewal 3.5%, buying finishes ahead by $257,709. These are bookends, not expectations.
Scenarios across stay lengths
A scenario also depends on how long you stay. Using the same three stories at different horizons shows where the answer is firm and where it is fragile.
| Years held | Cautious | Middle | Favourable |
|---|---|---|---|
| 4 | -$58,015 | -$12,281 | +$34,910 |
| 7 | -$94,845 | +$11,268 | +$113,282 |
| 10 | -$142,194 | +$41,686 | +$215,470 |
Building your own scenarios
Start from your real facts, not the base case: the price you are considering, the rent you would really pay, the rate you are quoted, your likely stay and the accounts you would use to invest. Then create the three stories:
- Cautious: lower price growth, lower rent growth, higher renewal rate, stronger investment return.
- Middle: assumptions you would defend to a sceptical friend.
- Favourable: the opposite of cautious. Treat it as upside, not the plan.
- Add one personal scenario, such as a move after four years, a job change or a growing household.
- Record the assumptions beside each result so you remember what each story meant.
Reading the results
Look for three things. First, does the winner change between scenarios? If buying wins in all three, the decision is robust to these assumptions; if renting wins in all three, the same. If it flips, the choice depends on a future you cannot see.
Second, how bad is the bad case? A result that is mildly negative in the cautious scenario is a different risk from one that costs six figures. Third, how does the answer move with stay length? A household that might move in four years should weight the four-year row more heavily.
On the base case a four-year stay with 2.5% growth gives -$36,749 for the buyer, compared with -$12,281 at 3.5%. A short stay with weaker growth is a very different proposition from the headline ten-year number. See time horizon and common mistakes.
Limits of scenario analysis
Scenarios are only as good as the imagination behind them. They cannot cover every future, and they do not say how likely each story is. They also treat the household as unchanged, which understates risks such as job loss, illness or a family change.
The point is not to find the right answer but to see how fragile the answer is. For how a downturn or a rate shock plays out in detail, read buy vs rent in a falling market and mortgage renewal risk. The probability tool adds a random-variation view.
Questions people ask
How many scenarios should I run?
Three is a good start: cautious, middle and favourable. Add one personal scenario for a likely life change, such as a move.
Are scenario results forecasts?
No. Each scenario is a stated bundle of assumptions. It shows how the result behaves if that story holds, not how likely the story is.
What if buying wins in some scenarios and loses in others?
That means the decision depends on the future. Look at how large the losses are in the bad cases and at how long you plan to stay before deciding.
How is a scenario different from sensitivity analysis?
Sensitivity changes one input at a time. A scenario changes several together, in a way that tells one coherent story.
Official references
Educational information, not financial, tax, legal or mortgage advice. Rules and rates change; confirm current details with an official source or a qualified professional.