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.

Could she pay the school fees instead so you could save for a deposit? That might save you problems with inheritance issues in the future?

If you don't mind living with her, why not buy jointly. You could find a house with a granny flat.

This sounds very complicated OP, tread carefully. So you are in the UK while she is in Aus? That alone makes it complicated. She would have to pay income tax on the rent she gets from you. Repairs, water and council rates would be tax deductible but as there isn't mortgage interest it would be positive geared.

Also you say it's worth a lot but the property market is dropping here. Is it definitely worth as much as she thinks. I'm in the market (in Australia) at the moment and a lot of sellers have very unrealistic expectations and their places are staying on the market for months.

I bought a house for my daughter and had the deed put in both our names JWROS (jointly, with right of survivorship) which means when I die it becomes totally hers with no inheritance tax. I cannot leave it to anyone else in a will, because it becomes hers the moment I die. I don't know Australian law but this would protect your investment.

Or are you both in Australia?

What's the position if she needs residential care? Does she get help from the state? Will she need to sell any properties?

I think this is incredibly messy op

• she would not have as much financial security
• her rental income could go up and down depending on exchange rates so risky

_ when she passes, if house in her name, your house becomes an asset within her estate. Then your house could be sold and divided amongst beneficiaries and anyone else who contests the will. If there is no will then it will be divided amongst her closest relatives. If she remarries then that’s another conundrum.

• shifting all of her assets into pounds is a risk depending on exchange rates.
• volatility of rental income depending on exchange rate
• most of her retirement money and assets in one investment property that may or may not be good investment. Lack of options, including not being able to live in property if you can’t pay rent for any reason.

You will all benefit having a mil that is financially secure at her age. She should not be in a position where she is renting or depending on one income stream/rental payment.

The Australian housing market is extremely depressed at the moment and has a poor outlook. Moody’s, the rating agency predicts it will continue to soften. Keep this in mind, not a great time to sell although probably won’t be a better time to sell for a few years or more.

I think she would be better off downsizing as she would sell at low price but also buy at low price in a similar market. Invest the rest of the money for her retirement and once she’s in a comfortable position, look at how she can help everyone equally.

You are always better off having financial independence. It seems like she has a good amount of money but it’s expensive to retire and she could have 30 years of retirement ahead of her. If she ever needs to go into a retirement/nursing home, she may also need a lump sum deposit that people usually get from their house being sold. You can live in nursing home without one but it limits your options with the quality of nursing homes (this is aus by way) and you have to pay a higher fee.

You are better off not having the responsibility of your mil hanging over you, it is not worth the trade off and financial independence protects family members, putting eggs into each other’s baskets does not. You don’t want this stack of dominos that falls over in the event of sickness, accident, death, divorce or remarriage or a lost will.

You sound really attached to this rental and I can relate but life is too short to get sentimental over rental properties. You can make a happy home wherever you are. You’d be better off with a Managable mortgage, I’m a promising area, I’m a home you can make your own. You can’t put a price on financial freedom and not having a dark cloud over you.

We're all in Australia.

Honestly, my worry would be if you & dh split.

I'm sure you're not seeing that as on the cards but...well, there's an awful lot of us who didn't either.

It's just taken me 4 years to disentangle my finances post split, what with 2 lots of parents having lent money or whatever! It's been a bloody nightmare & any remaining goodwill between me & xmil/my ex & my dps is now scorched earth.

I've come out of it all quite nicely - my dps were the generous ones & this was recognised in the final settlement. Xh is probably screwed financially for life, & whilst he was an absolute copper bottomed classic 'LTB!' nob, in his shoes I'd probably be as bitter as he is.

If you did split, MIL is quite likely to want you out of the house, whilst wanting your ex & your dc to stay in it. As she'd be your landlady, you'd have very little recourse - & your dh would be the one sitting pretty in the family home, able to argue for the dc to live with him, while you scratched about to afford a smaller rental.

Sorry to be a doomsayer - but at the very least I'd say you need a rock solid agreement as to what happens if you & dh ever break up (& even then it won't BE rock solid if anyone wants to play hardball in the courts).

I'd tread very very carefully.

Of course, the landlord may not want to sell as this is an additional pension income to him, so it’s all moot.

Oh ok gotcha, well we don't need to tell you all about the housing market and Australias negative gearing/capital gains tax laws then, sorry.

To make it similar, what about she does that plan but without you involved. Sell her house, buy a house in some other suburb and rent it, and rent a place for herself.

Avoids inheritance and you being potentially homeless problems.

Simpler I mean, not similar

Given that negative gearing is still very much a thing over here, I'm not sure why she doesn't negative gear your property onto her own mortgage and make your current house a purchase for herself. She only needs to do this up to the amount of your deposit if she doesn't want to do more. Rents here are much higher than mortgage rates so, having got you on the property ladder by releasing the deposit for you from her own mortgage, you could then pay off the rest of your mortgage instead of paying rent. Once it was paid off, she could make it over to you, or leave it to you in her will.

Because this cost you far less each month than you currently pay as rent, you could give her the extra that she is saving you in rent, which would pay her both the extra that the deposit will cost her on her first mortgage, plus would pay off the rest her small mortgage and allow here to stay in her own house and give up work.

We've rented out our property over here while we were abroad for a few years and the landlord taxes plus paying water rates etc have meant we didn't earn enough even for our mortgage payments. However, if we'd been doing it on an investment property, using negative gearing, we'd have been quids in.

I live in NSW and I suggest she sees a financial advisor who is not only familiar with both the immediate financial implications and with aged care finances. As she and you need to plan ahead and be prepared and plan ahead should she need care.
www.myagedcare.gov.au/home-start-here

This only helps you if she either gives you a reduced rent so you can save for a deposit yourselves (though this may be offset by you paying for maintaining the property) or she agrees to leave you the property in her will (and making alternative provision for her other child eg from the house she owns to make it fair).

But the latter is problematic as she can change her mind about her will at any time.

How would she feel if you did save enough to buy your own place and she then had to get random tenants?

It would be very different if she bought the house in your names with a legal agreement that you'll pay her xx a year (adjusted for inflation) until she dies. But if I was her other child (sil) I would be very resentful about that if she's been given nothing.

What may be fairer would be for her to split the money, buy two properties (ie yours and another similar) with a 50% mortgage and give the other to the SIL to inherit when she dies.

If she sells her large house surely she can afford a small house int he same area if there is only a small mortgage on it.

I think there are too many things that could go wrong and with the repairs things she could end up hounding you to get things done etc or if there is a problem then there will be the blame game going on and as others say you are in no better position really.

I wouldn't do it

Inheritance as you have identified is one issue. The other is care. It is fine to say she’s a good MIL now but things like dementia are very difficult to live with, require 24 hour care and can go on for years. Moreover, a mobile dementia sufferer with hallucinations can be very difficul to handle and could cause considerable distress to your children. You really need to cover the ‘what ifs’.

How will this benefit you? It sounds like you'd just have a different landlord. Will the rent be less than your current one? Will she leave the house to you on her will?

Is the house you’re renting even on the market?

This will not work for many reasons, including:
1- If your MIL is only working 2 days a week, she may be receiving a part pension from the Government. Assuming she retires from work, she will either receive a bit more pension (if she has no super to draw down) or much less (even nothing) if she has decent super to draw down.
2- Her primary home does not count as an asset for calculating the government pension, however as soon as she sells it, the cash does count as an asset likely wiping out any government pension she was receiving.
3- Even if she uses that money to buy another property, and rents elsewhere, it is deemed an asset and so no government pension.
4- She will be taxed on the rent she receives from you as this is income and so no government pension.
5- If she needs/wants to move into a retirement community or care home, her assets will need to be sold to pay for this. She is not entitled (I believe) to government care homes as she has assets to pay her own care and as, due to these assets, she is not entitled to a government pension.
6- Even if all the above wasn’t an issue, she will have stamp duty to pay on the purchase of the property she buys, which could be as much as 10% of the purchase price (depending on the state you live in) - does she want to waste this money?
7- She can sell at anytime - you are not secure.
8- If she passes away, I assume the property will be divided between both her children, and if your SIL wants to sell her share and you can’t afford to buy her out, then your house will have to be sold. Also, what if SIL wants to move in as a 50% owner if MIL passes away?

There are so many financial reasons not to do this, as well as too many boundaries that may be blurred.

You need to provide your own housing and not rely on anyone else or the promise of inheritance, as it can all go wrong at anytime.

You said “village” op so I assumed you were in uk.

I think you should hold out and buy something when property prices in Australia have slid even more. I don’t think it’s going to be pretty and you’ll soon be able to afford something.

Pom I need to read your post more carefully...are you a financial advisor? You sound very knowledgeable.

Pom I meant to ask...can you explain more about negative gearing? Or put it in a nutshell? I've never heard of it.

Humpy I am in a part of Oz which is known for it's Englishness.

I'd also be cautious. Does she have any experience managing a rental? Has she carefully considered the costs involved? Is she thinking that you'll just sort out any house repairs or updates to the property that need doing?

I think she'd be better off speaking to a financial advisor and investing her money.