But it can also fall, as we witnessed not too many years ago… Any speculation on real estate will already have been priced in and the expected profit from buying a house minimal.
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.
But it can also fall, as we witnessed not too many years ago… Any speculation on real estate will already have been priced in and the expected profit from buying a house minimal.
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.