MIl offering to buy our rental for us....AIBU to ask you all what pitfalls there might be?

[HennyPennyHorror]

MIL is in her early 70s and owns a house with most of the capital intact. She however is still working two days per week to pay off the remainder of the mortgage.

She wants to sell it to stop work. It's worth an awful lot as it's in a very popular suburb (Australia) and she'd have a lot in the bank.

What she's suggesting is that she buy our rental which we love and can't afford ourselves...and that she rents her own smaller place in the suburb she currently lives in. She'd still have some left going by prices for similar properties in our village...and she has a very good pension too.

Basically she wants to remain in the suburb she's in...but can't afford a house there. Even small ones cost a lot. Plus she doesn't want to live in a flat.

She's lived in that suburb all her life and her youngest grandson is there...she helps a lot with childcare for SIl who is a lone parent and lives with FIL...(MIL and FIL split years ago)

She thinks the rent we'd pay her would pay her rent...and then we'd all be happy.

But there must be things I've not thought of...potential issues which I want you lot to tell me...

I suppose if she owns it, when she dies she could leave it partially to SIl...in her will. Rendering us homeless...but SIL lives with FIL...who might leave her HIS house. But saying that...FIL has indicated that he's leaving his estate to both DH AND SIL.

Sigh.

What to do? DH and I are both self employed and due to various costs...school fees (kids attend a cheap private school because the others here are terrible) we can't ever get ahead enough to save a deposit.

Is it a terrible idea? I've thought about the fact that MIL might want to live with us when she gets more delicate in her old age...and to be frank I wouldn't mind that. I get on with her extremely well...shes a very good MIL. DH and I have been together for 17 years and MIL has only ever been lovely.

Is it a bad idea? MIL is asking us to ask the Landlord about whether he'd sell it. It's an old and battered house...would be a good investment...Landlord is elderly himself though and might be happy with things as they are.

[MrsElizabethShelby]

If she wants to do something like that for you, couldn't you ask her to front the deposit and you get a mortgage and buy it yourself?

Or is it that she can only afford to sell and move if you pay her rent? If the latter I think that's too much to ask of you tbh. What if you wanted to move? That leaves her with àll the hassle of having to get tenants and be a landlord. Does she really want that at retirement age?

[CustardOmlet]

What are inheritance laws and taxes like? Will you be expected to pay inheritance tax on the property when your MIL passes?

[GnomeDePlume]

If you do go down this route then make sure it is very formal. Make sure you have a tenancy agreement which gives you long term security. Think through the possibilities: what happens if.... Dont put yourself or your MiL in the position where you are depending on goodwill.

Think about how repairs and maintenace will be carried out. Who will instigate, who will pay. Who will put the money/time/effort into improving this house. Who benefits if you improve the house and therefore its value. Who gets final veto on improvements.

[HennyPennyHorror]

Thanks for all the thoughts!

There is no inheritance tax in Australia. They abolished it in the 70s apparently.

Good question about repairs etc. From what I can see from what MIL said, she'd pay for repairs. She said "I'd sort out that lawn for you if I bought it..." and so on.

DH is very handy...so she'd probably pay for materials and he'd do the labour on stuff that needed doing.

[HennyPennyHorror]

If she wants to do something like that for you, couldn't you ask her to front the deposit and you get a mortgage and buy it yourself?

She couldn't afford to do that.

[crosspelican]

Is she aware that she would face paying income tax on the rent you pay her (unless you pay in cash of course!) which would cut into her available cash for renting another property? Especially if she already has a good pension.

She would be better off giving you a deposit as a gift and helping you get onto the property ladder, not doing this convoluted scheme which could go wrong if she ends up incapacitated or in a home 15 years down the line. If you ARE paying her cash instead of rent + proper tenancy agreement then you would have no right to stay in your home.

[LongTermHold]

This is a lovely offer from MIL. Congratulations.

I think the main pitfall is that your MIL is moving from a stable situation to a rental where she may be asked to leave or may just not have control over her environment (eg to install elderly living-aid type adjustments).

[HennyPennyHorror]

Cross I think the amount that a deposit would be, would be too much out of her chunk to enable her to then buy another place or to rent securely...she might live for another 20 years.

I'd not considered income tax...are you in Oz? I'm not sure how it works here. I'm not an Aussie....never come across it in this context.

Long yes...I thought of that too. It's awful being asked to move on when a LL sells.

[LittleElle]

Would the rental income impact her pension?

[HennyPennyHorror]

Elle I don't know....this is why I posted here I suppose. Because I knew you lot would know the right sort of questions to ask!

She needs to see a financial adviser doesn't she? That way she can be forewarned of any problems which might appear.

[PeachesPlumsPears]

She will have to pay taxes on the rent she gets from you. I suggest your MIL speak to a Tax Accountant and discuss the effects the investment property will have on her pension. Other peeps have also made some good points she needs to consider.

[stucknoue]

You would need a written agreement and what would happen if she needs residential care? In the U.K. houses can be forced to be sold to fund it once money has gone.

[Snowy111]

In the uk if she needed to go into care, the local authority could demand that assets sold to pay for care - not sure exactly how rental properties would fare.

I would also say money deposit is best idea

[NewMum19344567]

You will be worse off. Still renting and not home owners BUT if anything goes wrong you will have to pay for it.

Mil can't afford to be a landlady and if anything broke you would need to fix it even though you are renting. E.g. windows/boiler

She will think she is doing you a massive favour when really you are in the same position.

If she gets sick or needs money she will then sell and you'll be at square one. Only probably worse off as you will have spent lots on the house to improve it before she sells it.

I don't want to come across as negative but having been in the exact situation and thinking MIL was an angel, I was so naive. She really screwed up our lives and i would never recommend renting off in-laws unless they are millionaires!

[slapmyarseandcallmemary]

Make sure you have contracts and it is done legally. My mil bought our rental flat (Scotland) when our landlord was selling it and we couldn't get a mortgage. She kept saying we didn't need a lease. Forward 2 years, she fell out with us, came up on our baby's 1st Christmas Eve and handed us an eviction letter. We were made homeless by her. Would never agree to anything like that again. It had been our home for 4 years. Just make sure you do it all legally.

[MeredithGrey1]

In addition to what PPs have mentioned, another issue I think is what if you ever wanted to move/buy your own house? Would you feel like you had to stay in this house because MIL needed you to? Even if you have no plans at all to move now, things change and what would happen then? If she needs the rent you’d be paying in order to pay her own, and she didnt want to rent to strangers, how would she feel if you wanted to move out?

[Margot33]

Wouldn't you consider buying this from your landlord and getting a mortgage? That's what I'd aim for.

[slipperywhensparticus]

She could loan you the money to buy the house and you could pay it back in monthly installments which equate to her rent?

[whyohwhyowhydididoit]

This sounds like a terrible idea from her POV. She would lose the security that owning her own home gives her and become dependent on you and your DH for her rent. What if you both lost your jobs for whatever reason and couldn’t afford to pay her. How would she be able to pay her own rent? Would she evict you to avoid being evicted herself?

And what’s in it for you too? All you would do is switch one landlord for another landlord. You still wouldn’t own your home.

She sounds very kind and generous but this plan is awful. A better idea would be to sell her own home and downsize to somewhere cheaper meaning she had some cash to give you as a deposit on your rental or other property. If that isn’t possible financially , or because she doesn’t want to do it, I think you’d all be much better off leaving things as they are.

[blackcat86]

It's a lovely offer and allows you to do something you couldn't otherwise. I would just be really clear with her that it's still your place and she needs to be ok with you exerting some autonomy. My mum and nan own our house and we pay a lower rent rate which we are very grateful for. However, we cant afford to move after a wedding, unexpected illness, unexpected injury (I broke my foot really badly) and now a new baby and this effectively leaves us hostage in areas any other landlord wouldn't give a shit about. My mum had a heavy influence over how we decorated, how the garden looks and when work was done. It's hard to explain when you haven't paid for it but equally I really didnt need new carpets going down a week after I came home post c section with a poorly baby!

[user1486915549]

I can’t see any advantage at all in this for you.
You would still be renting but would probably be expected to fund repairs and improvements on a property that is still not yours. ( unlike now )
It would be difficult for you to eventually move out and buy your own , your MIL would be depending on your rent.
You would be homeless if she needed to sell
You would be homeless when she dies and you don’t totally inherit it.
Just why would you ? I can’t see what’s in it for you.

[kateandme]

i think its a lovely idea.and you will have many coming on that will have bad experiences but that is because noone really comes to say "yes yes worked for us" there is always pepole seeing you thread title and seeing the bad experiences.
and mn has seen some bad mil situations.
but tbh there are also in the world some really love families who work,live and love there in laws.you could be one of them!
and it does sound like as it is perfect.
but.you need to get everything done properly.and not get offended by the questions you need to ask eacohter to make this happen legaly.

id just very nicely come into it with yes this is lovely but so that there can be no emotioanl problems being mingled in here lets have everything formal.so its tenant to landlors.paper contracts.so that covers repairs.covers rent.tax etc.
write down everything you need to ask eacohter.DONT LEAVE ANYTHING OUT!make sure all your worries and quesitions are asked. so you need to talk through her future too.including ikl health and her own landlord situation in a new house.

[GreenTulips]

If it’s a bigger house and the mortgage is almost paid off, and you said you’d consider her living with you - why wouldn’t you live in the bigger house? You’d pay rent.

How would you see that working?

Or could she get lodgers or students

[SummerPlace]

I'm in Australia - a bit younger than your MIL, but retired for a long while.
Looking at her age, you mention she has a very good pension which implies she may not be depending on the Gov't pension, but may have Superannuation which may not reduce with an income coming in. I know my superannuation wouldn't be affected by things like rental income (not that I have any other income, sadly). However, she would need to pay tax.

[kateandme]

pp have some up with some really good things you need to think about.
ive been on the dreamie side when i read you op.
so you should read and make sure youve thought through everything.