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Lease Option Exercise Calculator
A lease option gives a tenant the right (not obligation) to purchase the property at a pre-set strike price, usually for a one-time option fee and optional monthly rent credits. At end of term, the tenant decides: exercise, walk away, or negotiate. This calculator sizes the real economic value of exercising by comparing strike to current market value and netting out forfeited fees.
Recommendation
Exercise the option
Intrinsic value (market − net purchase)
$31,400
Exercise net after option fee
$23,400
Walk-away loss (option fee + credits)
$13,400
Net purchase price (strike − credits + closing)
$313,600
Option moneyness (market vs strike)
11.3%
Option fee + alt-return opportunity cost
$8,989
How the math works
Intrinsic value = current market value − (strike − rent credits + closing cost). If intrinsic > 0, exercising captures that as instant equity. If intrinsic < 0, exercising means overpaying for the house — walking away (and eating the option fee + credits) is usually right.
At $310K strike, $345K market, $5,400 credits, $9,000 closing: net purchase is $313,600. Intrinsic value is $31,400 — $23,400 after option fee sunk cost. Exercise is strongly positive. If market dropped to $295K, intrinsic would be −$18,600 and walk-away (losing $13,400 of option + credits) would be the $5,200-cheaper path.
How to Use
- Enter option fee paid at signing and accumulated rent credits through the term.
- Enter the strike price and the current market value of the property.
- Add expected closing costs if you buy.
- See intrinsic value of the option, exercise net, and walk-away loss.
Frequently Asked Questions
When should I exercise?
When current market value exceeds strike price plus closing cost. That's the 'in the money' point. If the option is out of the money at term end, walking away forfeits option fee + rent credits but avoids overpaying for the house. Lenders finance based on appraisal, so strike above appraisal can block financing entirely.
Are rent credits standard?
No universal standard. Common structure: $50-$300/month of each rent payment 'credits' against the strike price if the option is exercised. Over 24-36 months this compounds to $1,200-$10,800. Read the exact language — some credits vanish if you're ever late on rent.
What if I can't get financing?
You forfeit the option. The seller keeps your option fee and rent credits, and you have no legal recourse unless the contract specifically allows exit. Line up financing 60-90 days before the option deadline. Consider a no-cost rate lock to prevent last-minute rate spikes from killing approval.
Are lease-option contracts risky?
Yes, more for buyers than sellers. Some 'lease options' are actually disguised installment land contracts with harsh forfeiture clauses. Have a real estate attorney review before signing — $300-$600 well spent given forfeiture can cost $5K-$25K of option fee and rent credits.
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