The "extra" rent that you pay above the fair market rent can be applied towards the purchase price of the home IF you decide to exercise your option to buy as well.  

., incentivize by saying the purchase price will be $285,000 if they exercise their option on or before 2 years, or negative reinforcement by having set rental increases if they do not exercise the option by x date?

It gives me a good picture of the cash-flow in the most recent fiscal period (typically a year), but to carry that forward 2, 3, 5 or 10 years encompasses as many assumptions and predictions as does calculating an internal rate of return.Now, you can discount future cash flows and endeavour to calculate a series of CoC values ... or, perhaps an average CoC over a period of time ... but you are now getting into an exercise which is not entirely different than determining/projecting a rate of return :-)  Naturally the cash return is a component of overall rate of return."

@Brendan JacksonI think going about it the manual at first can be a helpful exercise.

He has no heirs, and beyond the age of having any, so if he passes away before I exercise it what happens to the option?

if its tax once the option is exercised tax is due at that time..

Thanks for your thoughts and concise example lol.I am more so looking to create a bridge with the convo though and exercise knowledge showing that my plans for future growth are, relatively, safe and stable as time goes by.

I value education because it is more than just a piece of paper you get.It is the ambition the discipline, it is aiming high, and your mind is like any other muscle. you need to exercise it for it to grow bigger and stronger.Hell I am crushing it in my market BECAUSE I am a NASA caliber robotics scientist.I became a master at SEO because I see numbers.

So going after tenants that can't pay is a fruitless exercise.

Also there are not capital gain taxes with 1031 exchange which he exercised by buying the Texas and Tennessee properties.