How to finance a relative buyout

[Benjamin Singer]

Hey Bigger Pockets Community,

I have a particular situation at hand that I wanted some guidance on from the group. 

My fiance mother and sister own a cottage outright. My fiance and I want to buy out the Aunt swiftly as she's agreed to a price from an Appraisal in Late 2019, and the property very much appraised. (The Zillow estimate shows it up over 25% from the time of appraisal). My fiance and I also put a lot of work into the house, mostly financed by her mom, to get it to a state is could be rented short term. (In august/september alone, we made about 10K)

My fiance and are also juggling several balls. We want to also get married in 2022, but first must buy this house, so 20% down (41K) plus around 15K in closing costs (The cottage is in new york state). I work in tech, make good money, but most of my Net Worth is tied up in ETFs, stocks, Crypto, and my 401K (I don't want to hold dollars now). I'd rather not have to liquidate anything to pay the down payments/wedding if possible. 

Eventually, my future mother-in-law intends to gift us the entire home. She's apprehensive slightly about doing as part of this transaction, as she fears the aunt may turn around and ask for more out of us than the current price of 205K, but the gift of equity cover the down payment. We're also first-time homebuyers. We do intend to keep a separate apartment in NYC, so there's a limit to how big a mortgage we would want to take out to support this. (We need the house for renting out in the summer, and select work needs for my fiance's freelance film career). 

So there are 2 approaches:

1) We suck it up, pay the down payments and take the pain upfront, and as a result still co-own with my mother in law (Better for sharing general expenses) plus it lowers our monthly mortgage

2) Gift of equity so we do not need to put as much down up front, but we pay more out month to month. 

Some questions I have is:

1) Is there a strong benefit for one method vs. the other that I have not highlighted?

2) Property tax - if I take out a loan to buy out the aunt, but remain on the deed with the mom, could I only pay for half the annual property tax in the mortgage?

3) If my future mother-in-law were to stay on the deed with us, what does her involvement look like on our mortgage?

4) Are there alternative funding methods I'm not thinking of?