Aloha mustached ladies and gents,
A proposal has been made to me by my spouse and I would greatly appreciate some thoughts and insight from anyone willing to take a few minutes to assess the situation. Here goes...
Recently, my FIL has been diagnosed with Parkinson's and my spouse, spouse's siblings, and I have been scenario planning to hopefully optimize future paths forward. One particular scenario has significant financial implications to my immediate family unit (spouse and kids) and from the Subject line, it's a scenario whereby we (spouse and myself) pay off my in-laws' mortgage (~$140k) and they subsequently pay us "rent" (~$600/mo) in an effort to assist them financially by lowering their living expenses. Their current mortgage payment is $1,300/mo and includes escrowed items (taxes, insurance). The other major assumption is that my FIL would receive SS disability to partially replace his pre-Parkinson's wages. At this point, we don't know what figure this would be. My MIL brings home ~$800/mo.
Obviously, there are several material issues (financial and other) that I have with such an arrangement:
1. The rent charged to my in-laws would be half of the market, significantly reducing the ROI. This is especially concerning given that I am not particularly interested in a rental property to begin with.
2. Who is responsible for home maintenance? I've been told that my in-laws would take care of all maintenance but if they strapped for cash and my FIL's physical status deteriorates, I seriously doubt they can afford the costs, especially if it's something significant like a roof, new water heater etc. The house is ~35 years old and has had some plumbing leaks/damage in the past year.
3. What legal rights would my spouse and I have regarding the house? I assume none unless a contract is written up and/or ownership transferred to us upon my in-laws' death.
4. Who receives the proceeds from any future sale? My assumption is they get back their initial equity and a proration of any price appreciation net of transaction costs.
Aside from those basic questions, our plan has always been to use the aforementioned $140k towards a down payment of a future home and keep invested in our brokerage account, split $100k/$40k. From this angle, I feel like this is detrimental to my immediate family - less money for future down payment (higher mortgage for my family), less liquidity (no brokerage investments), less rate of return (keeping $140K locked up for presumably decades in a flat-ish real estate market) vs. having a sizable portion in the stock market.
Additionally, there hasn't been any mention of my wife's siblings involvement and frankly, I don't think they can contribute much financially as they either don't make much or are spendy. So, in essence, this is a huuuuge ask of me to float another household and I think it's pretty GD unfair to me as most of our wealth has been earned by me. I'm the saver/investor in the family.
My alternative is for them to sell the house and get their equity out (cash in hand), then rent a place that can accommodate my FIL. The upside is increased liquidity, no home maintenance (physical work or payment for services), reduced likelihood of significant cash outlay for home repairs, more financial flexibility etc. My FIL does have a 401k and IRA, although I don't know the figures, but from conversations, he wanted to work another 10-15 years in order to boost the balances. MIL has nothing saved and doesn't seem energized to make any changes. I applaud my spouse's desire to help the in-laws, but this seems completely one-sided and I don't want the downside.
Am I missing anything else significant? I assume there could be a litany of issues/unasked questions.
Mods, if this is better placed in the Real Estate/Landlording section, feel free to move.
Cheers and thanks for your time.