To borrow your phrasing—in a competitive and efficient market, the expected profit from buying a house is equal to the risk-free interest rate. So my math actually was rather bogus—I should have talked about how the landlord should expect his $20k equity stake to appreciate at the risk-free interest rate (~2%), which would shave $400/year off the amount of collected rent needed to justify the house price in the first place.
To borrow your phrasing—in a competitive and efficient market, the expected profit from buying a house is equal to the risk-free interest rate. So my math actually was rather bogus—I should have talked about how the landlord should expect his $20k equity stake to appreciate at the risk-free interest rate (~2%), which would shave $400/year off the amount of collected rent needed to justify the house price in the first place.