The house next door

[Dan Bee]

Hi BPers,

There's a house my wife and I want to purchase. The house is located in L.A. and it's the house next door to my mother in law's house. This house next door is owned by a trust which includes my wife's mother and her sisters. My mother in law ("MIL") intends to buy out her sisters. She will do this by refinancing her house. How my mother in law does this is less important to me than what my wife and I do.

My wife intends to buy the house from the trust (with her mother as the sole benificiary) will put a downpayment of $100k and $600k will be financed by her mother with interest (rate will be same as refinancing rate - range between 3.5%-4.5% (probably closer to 4.5% to be conservative) for 30 years). The house is probably worth $1.2 MM now. The difference between worth and sales price will be gifted by my MIL - even if it doesn't make sense - I've explained this to her.

Our payments with taxes (Mother-Daughter exclusion from a new assessment), insurance, maintenance, and utilities come out to roughly $3,700. Since we're in Los Angeles, California, we can get a renter in a closed off room in the back for about $1k. This is very tight on our monthly budget and we'll definitely have to be even more conservative than we are now at with our income.

Real Estate Agents and Mortgage Brokers that we know (who don't have a financial interest have said this is a great deal. I'm not entirely convinced on whether this is a good deal or a bad deal. I think we need to ensure that the agreement is in our favor (which we have some latitude since this is family). Legally and tax-wise, I think we've thought a lot of things through.

We are buying at $1.3 MM with interest, taxes, utilities, etc and on sale in 30 years, more than likely $1.5 MM from a sale. Thoughts on the #'s aspect, legal, taxes, etc would be helpful. Thanks BPers.