William Bernstein in The Investor's Manifesto, page 37, analyzes the rental dividend of a home this way:
"A good rule of thumb is to never ever, pay more than 15 years fair rental value for any residence. This computes out to a 6.7 percent (1/15) gross rental dividend, or 3.7% after taxes, insurance, and maintenance, which is about what you might expect from a mixed portfolio of stocks and bonds. (Imputed rent does have one real advantage over the return from stocks and bond, which is that it is tax free.)"
Your $40 ER income would place you in the 15% marginal tax rate so the imputed rent would be $1,000*12/.85 or about $14,118 that you would have to earn to afford the $12,000 yearly rent, if you were leasing the space. This would definitely imply a larger stash. **So to cover that you would need 25*$14,118 or $352,950 more in the stash, which is about your home value. But you do pay taxes and maintenance on the home so the imputed rent is decreased by those amounts.
Bernstein, I think, would do it this way with your numbers:
12*$1,000/$300,000 or 4% dividend. Then, you would subtract taxes @ 2% and maintenance @1% for a net of 1% tax free return. However, your numbers may be underestimating the value of the rent for your home and property taxes vary.
I used Zillow numbers on our home in this way:
12*$1,600/$210,000 or 9.6%, less 3% taxes and 1% maintenance costs or a return of 5.6% tax free on the value of the home. Or, I would need about $22,600 in income to pay the rent here. (12*$1600/.85)
This seems to be a minority thought on the MMM forum, but I am a fan of Bernstein and like this analysis. A paid for house in retirement is a real plus to me and to MMM.
The forum members working to build their stash generally scoff at the plan due to an opportunity cost argument and their higher risk/reward AA numbers.
The imputed rent is real, it just doesn't show up as income and it doesn't get taxed.
Owning a home outright flies below the tax radar so far.
**edit