My spread is $445 against 16 months of tail risk on a sandwich lease option

Run the vacancy number the way you'd run it on a normal rental and it looks worse than $5,850. Turn on a 1970s house after 18 months of somebody who thought they were the owner is rarely just paint. I budget 3 to 5 weeks and $2,500 on my units and I get surprised anyway.

So call it $8,000 to $9,000 for one mid-term failure. Your spread over 36 months is $16,020 if nothing goes wrong. One failure eats half your upside and the option itself carries the rest. Which means the option is the deal and the spread is a subsidy for holding it. Worth knowing which one you're defending when you go back to the owner.

I'd want to see four clauses before I had an opinion on the termination right.

Does the head lease permit subletting in writing, and does it permit subletting to someone holding a purchase option? Those are two different permissions and plenty of drafts only give you the first.

Is your option assignable, and does assignment require owner consent? If consent is required and not qualified by anything, the owner controls your exit and the 90 day termination right you're about to pay for is the second best thing you could be buying.

What does the owner's mortgage say. An option by itself often isn't treated as a transfer, but that depends on the loan documents and on state law, and the only version that counts is what the servicer says in writing.

And your own sublease: does it say what happens to accrued credits if your option terminates for any reason. You said you read it four times and found nothing, which usually means nothing is there. Fix that with your attorney before month 18 finds the gap for you.

The spread and the tail are the same position viewed from two ends. You are long a purchase option at $312k and short 36 months of $1,950 rent, with a sublease that partially covers the short leg. When the sublease is performing you collect $445. When it isn't you carry the full $1,950. That is the whole risk picture, and it means the value of the deal sits almost entirely in the option, as cairn said.

What the termination right is worth depends on one assumption: your estimate of the chance the tenant-buyer stops paying or leaves before month 30. If you think that is 20%, the expected cost of a mid-term failure at cairn's $8,000 is around $1,600, and paying much more than that for a termination right is buying comfort. If you think it is closer to half, which is not unreasonable for a tenant-buyer who needed a rent-to-own path in the first place, the expected cost is $4,000 and the calculation changes. You should also price the case where the tenant-buyer does close, because a 90 day termination right is worthless to you then.

A cheaper version to ask the owner about is a substitution right, meaning the ability to place a replacement tenant without re-approval, plus a defined cure period before default. That addresses the re-tenanting delay directly.

Two compliance points to confirm rather than assume. Marketing and placing tenants in a property you do not own can trigger brokerage or property management licensing depending on your state, so check your state's statute before you advertise the next one. And how a rent credit is documented for a future lender's underwriting varies by lender, so get their requirements in writing early.

The licensing point is the one I'd chase first, since I'm partway through my own coursework and the definitions in my state's statute are broader than I expected. Advertising a property, showing it, and collecting money for it are all separate acts and some states catch them under different exemptions. Being the tenant under a lease you actually signed is usually the escape hatch, and that's exactly why fathom's sublet permission question matters. If your right to sublet is shaky, so is your story about why you're not acting as an agent.

Dumb question from someone still picking a strategy. If the house is worth $330k and your strike is $312k, why not just buy it and be done? You'd own the appreciation instead of renting an option to it and you wouldn't be short 36 months of rent.

@kestrel because $312k of financing at today's rates on a 1970s house doesn't cash flow at $2,395, which is presumably the whole reason the structure exists.

Sextant, the thing I'd flag from doing this in a much cheaper rural market is the replacement pool. My first tenant-buyer walked at month 14 and the honest count of people who wanted a 16 month option window, had an option fee, and had a plausible path to a loan was two. Not two a month. Two. Your suburb is deeper than my county but the window shrinks every month you hold it, and a shorter remaining term prices your option fee down. I'd take the termination right if the owner sells it cheap and treat it as insurance rather than as a plan.