> but you can't buy a small room.
Sure you can. Housing units come in all shapes and sizes. In the U.S. at least small places are usually sold as condos and can be as small as any efficiency.
> Perhaps we do live in a bizarre market because I've done exactly what you described.
No, you rented a smaller place than a house, then invested the difference.
I said "equivalent place to rent".
I'll say it one more time and maybe this time your reading comprehension will kick in, unless you live in an absolutely bizarre market, where rents are vastly under mortgage costs, and you can rent an equivalent property (same size, same number of bedrooms, etc.) at those vastly lower rates, you'll never have enough money extra that you would have spent on property ownership that will earn back the money you've set to fire by renting.
For example (since you seem to need a specific one):
A house that costs $600,000 needs slightly more than $2,600/mo to service a 30 year loan. Unless you live in an absolutely bizarre housing market, you will not be able to rent the same house for an amount that is significantly less than that.
But, let's suppose you cut a deal and rent it for $2,000/mo. That leaves you with $600/mo. You need to turn that $600 into $2,000 every month to make up for the loss on rent. I laugh at your 50% return, because now you're only $1,100 a month in the hole each month.
Suppose your landlord is a real cool guy and let's you keep the same $2,000/mo for 30 years (unlikely, but let's suppose he's an idiot), You've now burned about $400,000 and still have to figure out how to cover housing costs until you die.
Your smart friend on the other hand, after 30 years, has $600,000+ in property, no more major housing costs for the rest of his life and spent less than you to get there.
Suppose your friend hits it big, he can refinance after a few years, lower his mortgage payment below your rent (which has probably gone up by then), and can now make 50% gains on his investments and he's still buying his property.
Let's say he hits it really big on his investments, he can just pay the house off early, not pay the balance of the interest, his housing costs go to near zero and now he can invest all the money he'd spend on housing on your 50% return investment plan.
If he's real smart, he'll just buy a second house, and rent it out to you since you'll just pay most of that mortgage for him.
After 30 years he now owns two houses, has made a fortune on your investment plan and you're still paying what are probably much higher housing costs for renters.
Maybe you're a real clever guy and after 30 years you've somehow saved up enough to just buy a house outright and skip all the other costs (minus maintenance), maybe you but the house your renting from your friend. Great, you now own property, and your friend still has his house and the money you paid to buy his second house (now valued well in excess of the $600,000 he paid for it) plus the fortune he earned investing in your stock tips, plus you'll probably have paid him back for all the interest he ever paid on the house via your purchase price.
(okay okay, I'm handwaiving away interest and taxes and such, but the math doesn't change all that much once considered and most competent landlords simply pass along those costs to their tenants).