How to use this calculator
- Enter today's value and the strike price in the option agreement.
- Enter the option term and the option fee.
- Enter monthly rent and any rent credit toward the strike price.
- Enter your appreciation expectation.
- Check the break-even rate and the scenario table to see when exercising makes sense.
Worked example
A $300,000.00 home has a $320,000.00 strike price for 3 years, with a $6,000.00 option fee and $200.00 a month in rent credits. Credits total $13,200.00, so the net price is $306,800.00. The home must appreciate about 0.75% a year for exercising to break even. At 4% a year, exercising would create $30,659.20 of equity.
These are the default inputs above, so you can follow along.
The formula
Credits = option fee + rent credit × months (assumed credited at exercise). Net price = strike − credits. Value at expiry = today's value × (1 + g)years. Equity if exercised = value at expiry − net price. Break-even annual appreciation g* = (net price ÷ today's value)1/years − 1. Above g*, exercising creates equity. Below it, walking away limits the loss to the credits and fee.
Frequently asked questions
Am I obligated to buy in a lease option?
No. A true lease option is a right, not an obligation. A lease purchase agreement may obligate you to buy, so check which one you are signing.
Are option fees and rent credits refundable?
Usually not. If you do not exercise, you typically lose them. The calculator shows this as money at risk.
Can a lease option be assigned to someone else?
Some agreements allow assignment and some prohibit it. Investors often negotiate assignability, but the agreement controls.
How is the strike price set?
It is negotiated at signing, often at or above current value to account for expected appreciation.
What is the main risk for the seller?
The property is tied up for the option term, and if values rise sharply the tenant captures that upside. If values fall, the tenant may walk away.