The real estate market is far from efficient. Transaction costs are very high and good data is hard to come by. I think a bottom-up approach would be far more accurate than an economics-based approach that uses assumptions that are extremely inaccurate for this situation.

There's also a non-obvious positive risk, too. Specifically, the appreciation of real estate prices. If the landlord owns a $120k house that they expect to increase in value 1%/year over their mortgage rate, then that's another $100/month that the landlord doesn't have to get in rent. In other words, the landlord is holding an equity position in the real estate they are leasing to you. This equity position can appreciate, giving a non-rent-collection profit source that increases the price they are willing to pay for the real estate in the first place, lowering their profit as a percentage of capital invested.