Three scenarios, three profit numbers — know your upside (and your downside) before you sign anything.
How a Lease Option Works: You control a property through a lease agreement plus an option to buy at a fixed price within a set timeframe. You can use this as an investor in three ways:
🏠 Exercise — Buy & Keep It📋 Assign — Sell Your Option⏰ Let It Expire — Keep the Payments
📋 Lease Option Terms
The price you have the right to buy the property at — locked in for the option period
$
Non-refundable money you pay the seller for the option — typically 1–5% of value
$
Your lease payment to the property owner
$
How long you have the right to buy — typically 12–36 months
Portion of rent credited toward your purchase price each month (can be $0)
$
🏠 Your Tenant-Buyer / Assignment Info
What your tenant-buyer pays you each month — should be above market rent
$
Non-refundable option fee your tenant-buyer pays you
$
What your tenant-buyer has the right to buy at — your spread is the difference from what you control it for
$
If you sell your option to another buyer instead of exercising — what would they pay you for the contract?
$
What it's worth today — used to calculate if the exercise scenario makes financial sense
$
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🏠
Scenario 1: You Exercise
You buy at your locked-in option price and keep the property
$0
📋
Scenario 2: You Assign
You sell your option contract to another buyer for a fee
$0
⏰
Scenario 3: Option Expires
Tenant doesn't buy — you keep all option money & cash flow
$0
Total Option Money Paid
$0
Your upfront cost
Monthly Cash Flow Spread
$0
What you collect minus what you pay
Total Rent Credits Earned
$0
Applied toward your purchase price
Overall Verdict
The Sandwich Lease Option: The most powerful version of this strategy is the "sandwich" — where you control a property from a seller via one lease option, then lease it to a tenant-buyer via a separate lease option at a higher price and rent. You keep the spread in both directions. The numbers in Scenario 3 above show your minimum guaranteed return if the market never cooperates. Calculate your cash-on-cash return on this deal using the monthly spread and your total cash in.