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.

Many good points here, one of the most compelling being the split scenario. There have been several horror stories on here where PILs were landlords and it got very nasty and/or unfair for the partner who had to leave the house. Course everyone hopes it won't happen to them but it happens and you're wisely looking at the pitfalls first. Don't do it, I would say. You're no better off and will be worse off numerous ways. However nice she is, this is all about what your MIL wants to do. You're renting anyway so I don't see the benefit. Stick with a landlord you don't have emotional ties to.

She has got experience renting a property out yes. But I agree...the safest option is for her to get proper advice from a financial advisor.

The splitting up factor....yes that could be an issue in the worst case scenario. But seeing as we don't own anything anyway...well I've not much to bloody lose have I?

I think MIL is panicking a bit about having to sell. She doesn't want to not own a 'proper house" or something...change makes people feel vulnerable doesn;t it?

That's a cheerful take on the split scenario but if your partner inherits a house you've both effectively paid for over the years, so he's sitting pretty while you're still renting, it'll be hard to feel so philosophical. Esp if the DC stay in the house with him. It just makes messy things much messier.

Pink Well I suppose you're right. I'd have contributed wouldn't I? Hmm.

But his Mother could just chuck me out...and he could obv.

But there's no real way for her to assure me of some sort of return on my investment so it's probably better that she doesn't buy it.

That's cleared that up!

How would you fare if, for some reason, your income was insufficient to pay the rent? I'm the uk it's harder (not impossible) to get housing benefits when your landlord is family.

Hopefully that won't happen, but you need to consider the possibility.

Well I don't know about rent help here tbh. We get a version of working tax credits and that covers rent but obviously as the children get older it will go down I suppose.

But then we won't have school fees...which will more than cover rent. But if one or both of us were unable to work and MIL was the LL...I suppose they'd investigate and make sure she had her own home.

Not hard to prove if there's a tenancy agreement. But now I've read all the advice I think it's a bad idea anyway...MIL needs to see a financial advisor and get some proper advice.

Better for her to downsize to a slightly smaller house and gift you a deposit so that you can buy the house yourself.

Otherwise she’ll turf you out when she needs to pay for aged care or you’re get turfed our if she dies and the SIL wants her share of the house.

I second Possum123. You all need a very good, independent financial advisor who is very au fait with Centrelink deeming rules and timing, followed by a very good specialist inheritance lawyer. By independent FA, I don't mean one employed by or recommended by her local bank branch, insurance broker or superannuation. www.ato.gov.au/general/tax-planning/background-check-for-smart-investments/independent-advice/

Please get Australian advice. If you split you will still be entitled to share assets (de facto relationships are acknowledged here) and the tax rules are completely different to the uk. Negative gearing (tax saving on rental properties) may change in the coming months and that will make a big difference to costs. Get a good accountant, they aren’t expensive necessarily and any fees are tax deductible anyway!

@HennyPennyHorror

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

Sorry, I missed this message. Not a financial advisor but we had to rent out our house here and we learned all about the pitfalls the hard way. Negative gearing in this suggested instance is using your mortgage as an investment strategy on a second property (very roughly speaking) and gaining a tax advantage. Here's a link www.commbank.com.au/guidance/property/negative-gearing-and-tax-201605.html

If Labor get in, there may be some changes to that loophole but they've been muttering about it on both sides for decades now so I am not holding my breath.

Pom thanks so much for that link. It's very well explained there. That might be something for MIL to mention to the financial adviser. Anyway...it's not settled yet. We'll see...there seem to be a lot of pitfalls!

There really do! It does sound as though you might need to stay clear but it's always worth exploring all the angles and asking professional advisors all the questions. Good luck.

PS I am in the ACT, if that helps at all. There may be different state and territory rules.

You need to take advice from professionals in oz

If she negatively gears it, then it becomes a tax write off, but only at tax time. If she receives any Centrelink, she may be eligible for rent assistance, but that may be affected by the income from the rental- you'd have to check. Best bet is going to a financial planner, and telling them the idea and they can then tell you if it's actually worth doing from your MIL's persepective. Does she have super? Is it enough or would the sale of the house be needed to augment that?

I'm confused. If she can afford to buy it, then how come she can't afford the deposit and let you get a mortgage for the rest )which might be less per month than you're currently paying.

Why is she so desperate to own a house, even though she won't be living in it, and actually will be renting herself?

And there are many cautionary takes on MN of in laws (or parents) who buy a house for a DC to live in, but then because they own it, think they have a right to walk in whenever they feel like it (because it's 'theirs') or to tell you how you should live your life while you're in it, how to decorate it, and how to spend the money you have left over from paying your rent.

Notwithstanding all the tax and inheritance implications,and whether or not she thinks it will give her the right to move in if she becomes frail, I wouldn't do it. However lovely she is now, money (and being indebted to someone close) changes things immensely.

She can't just give us the deposit. She'd not be left with enough to buy her own place then.

I suppose she COULD but then she'd be left renting with no investment or fall back.

I get what you're asking Morty and I think the reason she's desperate to own something is just for security. The feeling that she has something. But she can't afford to buy her own house in the area she current;y lives...and she wants to stay there.

If she rented there, I suppose she feels she should invest in another property...it's her money after all. Why should she just give us her money?

Unforeseen things can go wrong. I shared a rental with my sister, she was on a low salary so when we bought it although we shared the deposit the bank considered my salary when giving the loan.
But she did most of the work surrounding it, so I offered a scenario that we would sell when she wants to sell ie we'll do what suits her best and I will give her more of the proceeds.
Got a bit of a shock though when she rang and said her financial advisor had advised her to buy another rental and she had decided what she wanted was to buy me out.
My mother and father offered to go halves in a house for my little sister as she was a single parent. After two years the housing market boomed and my sister then decided that she would prefer to own the house outright and told my parents she now considered their 50 percent investment as a loan rather than them jointly owning the property.
None of these experiences were bad enough for our family to fall out over - but they could have been.
This property is your home - if your mother'n'law decides to buy it and then decides she wants to sell it at some point - where would that leave you? Or if she dies and whoever inherits it wants to sell it?
Besides - this is all hypertherical until you ask your landlord if he wants to sell!