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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

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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