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Advice please re. DH and BIL inheritance of MIL's house/shared BTL of BIL's house

(39 Posts)
cakesonatrain Wed 07-Aug-13 12:53:12

DH and BIL are inheriting MIL's house, 50/50.
The original plan was to sell MIL's house. We need to move soon (2 dc, 2 bedroom house, long commutes for DH and I) so the proceeds would be an excellent deposit for the new house.

BIL has now said he'd like to buy DH's share of the house from him.
Fine by us - we still get the money, we have to wait for BIL to sell his house but we would be waiting for a house sale anyway, and this way we avoid EA fees, no dodgy buyers etc.

But then, BIL is thinking, instead of selling his house to buy half of MIL's house, he would like to rent his house out to cover that mortgage, and buy half of MIL's house with a new mortgage. Only he doesn't have enough equity to change to a BTL mortgage, so has asked DH to go in with him on it.

I/we have a number of concerns about this plan.
1. Getting involved financially with family can be awkward.
2. DH having this BTL mortgage with BIL would limit how much we could borrow to buy our next house, which is supposed to be our long-term family home, not a stepping-stone.
3. There will be times in the next 20 years when BIL's house has no tenant, so the mortgage payments would not be covered.
4. From the sounds of it, there will only be a small margin between the mortgage and the rent. This would get eaten up by a management fee (unless DH/BIL manage it themselves) and then there are the inevitable maintenance costs...
5. I'm struggling with the chronology. BIL would need the BTL mortgage in place before he could borrow further to buy DH our

cakesonatrain Wed 07-Aug-13 13:00:03

<posted too soon - fat fingers!>

...to buy DH out of MIL's house, right? So would that mean DH having to stump up the 10 grand or whatever it would need to be beforehand (we don't have it!) or could it be done by DH just giving BIL a discount on the price of his share of the house?
6. What happens if either party needs to liquidate their assets?

So I guess I'm not very keen on the idea!
But does anyone knowledgeable have any advice?
It's all just at the "let's see what's possible" stage ATM, but it does just feel like we are doing BIL a favour. I know we would end up with a share of his house, but is it worth the hassle?

Relaxedandhappyperson Wed 07-Aug-13 13:05:59

Why would you want to do that?

Tell Bil to sod off (nicely) and stump up. Or put Mil's house on the market.

This plan is all about what your brother in law wants and not about what is best for your family. Don't do it!

OldLadyKnowsNothing Wed 07-Aug-13 13:06:37

I'm not particularly knowlegeable, but BIL has 50% equity in MIL's house; can't he get a BTL mortage for the other half, and buy your DH out that way? BIL still has a home, and a BTL property, DH and you have your cash.

titchy Wed 07-Aug-13 13:11:44

Agree don't do it!

However, BIL may like to consider as an interim measure getting a larger BTL mortgage on your MIL's house (up to 80% of the value I think is possible), using most of that to pay your dh his share, then using the remaining cash to pay off some of his own mortgage to give him enough equity in the future to get a BTL on his current place, so he can let that out and move into MILs.

It's complicated, but probably doable, and means your dh isn't involved, has his share of the house, and BIL eventually gets to do what he wants.

titchy Wed 07-Aug-13 13:12:08

Cross posts with oldlady!

cakesonatrain Wed 07-Aug-13 13:16:23

I don't quite understand you, titchy.

BIL can borrow against his share of MIL's house, to buy DH out of his share?

Think of it as BiL takes a 50% mortgage on MiL's house to buy out DP. Then remortgages another 30% (bit all done in one transaction) and pays it off his other mortgage, this increases the equity in his first house so he can switch to a BTL mortgage. Long way round but better than financially tying yourself to BiL for a long time.

cakesonatrain Wed 07-Aug-13 13:24:15

Oh I see, thank you. That sounds like an actual suggestion we could make to BIL.

Relaxedandhappyperson Wed 07-Aug-13 13:24:52

How Bil finances it is his problem. Don't get involved!

Just get your husband's share of what his mother left him.

cakesonatrain Wed 07-Aug-13 13:29:40

Well that is what I want to do, Relaxedandhappyperson, but DH seems to be being swayed by the 'having a chunk of property in 20 yrs time that we can sell and give to the dc' potential.

Viviennemary Wed 07-Aug-13 13:33:38

I can't see how this could be beneficial to you in your situation. It might be beneficial to your bil. Why can't you finance your own smaller property from the share you get from your MIL's house. Then you will have complete control.

In 20 years BIL may not want to sell, or BIL might not even be there. 20 years is a long time to be tied together like this. I wouldn't touch it with a bargepole - just get your DH's share out.

Relaxedandhappyperson Wed 07-Aug-13 13:38:34

Surely you could downsize in 20 years' time and give the money to the offspring. And you wouldn't have to pay capital gains tax as your own house is exempt but other houses aren't.

Inertia Wed 07-Aug-13 13:39:18

If your DH wants to invest in property for your children it'd be much better to do it independently- use his half of his inheritance to buy a house, or keep your existing house to let out when you buy new.

If he goes along with BIL scheme, chances are BIL will refuse to sell to liquidate the money when you or DC actually need it, and you are less likely to have as much money saved for them as you might do if your weren't investing in property.

Your BIL's scheme suits your BIL only. Your DH needs to take the money out of the inheritance, invest appropriately, and let BIL sort himself out.

What would happen if BIL used jointly -owned property to secure further loans, or defaulted on either mortgage? Is there a chance that your DH would lose his inheritance?

MissStrawberry Wed 07-Aug-13 13:39:19

Surely you will have the house you hope to buy to give your children?

deepfriedsage Wed 07-Aug-13 13:40:24

Take your half of the inheritance, buy your own BTL.

cakesonatrain Wed 07-Aug-13 13:41:43

Not much chance of a smaller property - BIL's house only cost £95k a few years ago, and it's only a few minutes from MIL's house. I think in terms of property investment, it's this one or nothing.

cakesonatrain Wed 07-Aug-13 13:46:01

I'm so glad that you are all saying No!

My initial reaction was No, we would be helping BIL to our own detriment. I hope DH doesn't want to go for it. Bloody BIL. Nice enough bloke, but I <knew> there would be some complication to this simple inheritance. Even by asking he has made it awkward.

cakesonatrain Wed 07-Aug-13 13:55:44

So, a new question!

When we sell MIL's house, does DH pay Capital Gains Tax on his half??
I know chuff-all about taxes.

vintagecakeisstillnice Wed 07-Aug-13 13:57:27

Seriously don't do this!

follow Willyoudothefandangos advice

We had a similar situation with OH and his brother.
First they agreed to rent the house out and did it up with this intention.
BIL then decided he wanted to live in the house.

So BIL moved in with the agreement that he would pay rent for OH's half of the house, that they would look at current rents for the same property and BIL would pay OH half of that,all informally agreed.

Never got a penny, BIL then denied OH access to the house, this wasn't OH dropping in as and when, this was BIL claiming he had done various bits of work on the house and presented bill to OH wanting him to pay half. Which OH was happy to pay but wanted to see the work to see what he was paying for.

OH was also in the mind that hey we'll have that house in 20 years time a bit of a pension.

Then BIL put the house up for sale, we only found out because a friend was looking for a house in the same area and showed us the details. . OH contacted the estate agents and informed them that he was a Tenant in common, so anyone buying would only be buying 50% of the house. (Personally I would have let them carry on till it came to the solicitors, and them the buyers could have sued, but I would have felt bad for them).

Anyway long story short with various other episodes of shocking behaviour we ended up going to mediation and it was only with the threat of court with BILs solicitors telling him if it went to court he would lose and be liable for all costs, that is was finally agreed that he would buy OH out.

this took 7 years a whole load of heart ache, huge family rows and issues and cost us we reckon at a minimum £42,000 in 'lost' rent money.(well we didn't lose it as we never had it but you know what I mean).

Seriously don't do it

Your BILs plans sound a bit pie in the sky as it is, if he wants to buy your DH out let him do that how he does it is not your problem. (Surely if you sell, his half should pay off a big chunk of his current mortgage, and then he can re-mortgage to but a different BTL house. . . )

cakesonatrain Wed 07-Aug-13 14:30:53

Ignore cgt question, I have found the answer!

I think that your DH will pay capital gains tax on the increase in value from when he acquired it to when he sells it. There is a capital gains tax allowance so if it is under about £10k of gains he won't have to pay CGT.

cakesonatrain Wed 07-Aug-13 14:39:42

If we sell MIL's house, BIL could pay off pretty much his entire mortgage. He is trying to avoid the fees and hassles of buying houses outwith the currently owned ones.

Viviennemary Wed 07-Aug-13 14:49:25

I think it will be far more straightforward just to ask for the money for your share and it's up to your bil how he finances it. Loan mortgage or whatever. That isn't really your problem. Renting a property is enough hassle even if you are the sole owner never mind a shared property. Agreeing on improvements, shortfall on rent if between tenants and so on. It sounds like a true nightmare. Sorry to be so negative!

Sounds like your BIL is getting you and DH to pay all the costs for him, so he gets all the benefit.

I think as others have said make sure you and your family are protected, and you can get what you need.

cakesonatrain Wed 07-Aug-13 15:43:32

Ok, so we've established that BIL would be getting by far the better end of the deal.
BUT, if we had proper signed agreements as to what happens when one brother wants to sell etc, would it actually be a bad financial prospect for us, if we assume that we could still afford to buy a nice house now once the deal with BIL is done?

Zigster Wed 07-Aug-13 16:36:07

Putting aside whether legal agreements with family are a good idea (sounds to me like a recipe for a big falling out ...),

do you actually want more exposure to the property market?

Many people have more than enough exposure to property through owning their own home. Buying rental properties does run the risk of putting all your eggs in one basket - great if the property market booms; terrible if it crashes. And, with just one rental property, could you happily cope with the downs as well as ups: the risk of a void or a non-paying tenant?

I know there are people that have done well by investing in property in recent decades. I'm less convinced that it is an easy route to wealth in the future.

Relaxedandhappyperson Wed 07-Aug-13 16:50:52

BUT, if we had proper signed agreements as to what happens when one brother wants to sell etc, would it actually be a bad financial prospect for us, if we assume that we could still afford to buy a nice house now once the deal with BIL is done?

Look at points 1 and 3 in your OP. It sounds as it if would not be a great financial prospect.

But you'd need to do the sums if you really wanted to go ahead. Also you'd need to take into account the extra mortgage interest you'd be paying on your own home (you'd need a larger mortgage to buy your own new home if you don't have the proceeds of MIL's house as additional deposit).

At the end of the day it's up to you and your husband. But you did ask for advice... and the advice is still Don't Do It.

cakesonatrain Wed 07-Aug-13 17:54:31

Thank you everyone.
I guess what I'm asking for is advice on how to decide whether it would make financial sense - what are all the things we need to consider?
I do appreciate the 'Hell no!' advice, and that was my initial position, I just want to make sure we really consider it all properly.

Inertia Wed 07-Aug-13 18:40:40

Ok, so look at the figures. For the sake of argument, say that MIL's house is worth a bit more than £200,000, so that once all fees are paid each brother takes an inheritance of £100,000.

You want to buy a house costing £250k and you take 50k equity from your old house. You'd either have a mortgage of 100k and use the money from the inheritance, or lock up the inheritance in buy to let and have a 200k mortgage.

A quick go on MSE (assuming 6% interest rate and 25 year term) suggests that a 100k mortgage would cost 194k, whereas a 200k mortgage would cost 387k. That means that your property investment would have to make 193k for your husband (so double that overall to take BIL's share into consideration, i.e. 386k) before you even break even.

Wow Inertia that's some awesome maths!

cakesonatrain Wed 07-Aug-13 19:33:52

Thank you for the method Inertia, that's just what I wanted to do, but baby-brain wasn't letting me! I'll substitute in our likely figures and see where we end up.

cakesonatrain Wed 07-Aug-13 20:28:03

Hmm, due the small sum we'd be putting into the BTL, it comes out as being a good investment.

But we would have to make sure we could afford the mortgage repayments when there was no tenant, and all the maintenance costs. And be happy with the family situation...

Zigster Wed 07-Aug-13 20:41:59

How much will it cost to do up? If an old lady has been living there for some time, chances are it needs a revamp (kitchen, bathrooms, carpets, curtains) which might take a fair old investment to make it rentable.

And is it a property which would be good to rent anyway? People look for different things when renting compared with buying.

cakesonatrain Wed 07-Aug-13 21:06:59

No old ladies involved at any stage!
The BTL house would be BIL's current house. MIL's house (which we will be selling if BIL decides not to move in) could do with a new kitchen but is pretty much immaculate other than that. She was 53.

Not seen BIL's house for ages, but I think he's got it looking quite nice.

cakesonatrain Wed 07-Aug-13 21:09:13

Oh, and BIL thinks it's a good renter, but he would say that, wouldn't he?!
2 bedrooms, dining kitchen, teeny garden, garage, near a primary school.

But Inertia, at the end of scenario 1 they would have a house worth £250k (ignoring inflation) and in scenario 2 they have a house worth £250k and their half of the other house worth £100k, so £350k in total. So you are looking at a cost of £194k to have a final value of £250k or £387k to have a total vale of £350k. So up you can take the extra £100k of capital off the £193k extra mortgage cost. So the additional cost is £93k over say 20 years. So you would need the rental income (excluding refurb costs etc) to be about £5k a year or perhaps a bit less to account for capital appreciation. Round here you might get £900 a month for a £200k house, so it might just about be worth doing, though you would need to do the numbers and tax impact very carefully.

I still would say no. Not because of the numbers, but because of being trapped with BIL in an investment.

orangeandemons Wed 07-Aug-13 21:16:15

Don't do it. Myself and db are currently wrangling over my dms house. I'm exhausted. Everything is a 4 way decision, as 4 people involved, and has to be hammered out. It's making me fall out with db whom I normally get on with, as he is behaving like a twat in my eyes and vice versa.

Not worth the hassle

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