Real Estate Opportunity for $150K on a $600K Home

[James Kennedy]

Hey Bigger Pockets, my wife and I are looking for some advice on some options to approach a opportunity that has presented itself.

The Goal

Buy this home to leverage the equity in order to buy our first investment property. Eventually we will inherit the property for to use as a home or rental. 

The Situation

We currently live with my mother-in-law in this home together. My mother-in-law owns 50% of this $600,000 home. The other owner is willing to sell us the other 50% of the home for $150,000. Therefore we would own 50% of this home for $150,000 with $150,000 in equity(possibly $450,000 in equity if in-law is willing to let us borrow against her half) to use to buy our first investment property(s).

Now the real estate agent we are in contact with told us there are 2 ways to do this.

1. Refinance $150,000 against the home under our name in order to avoid closing costs, property tax increase, and down payment.

2. Buy the home using conventional methods that will have closing costs, property tax increase, and a down payment.

Some Issues

My credit score is not very good at 650ish. Apparently my mother-in-law's credit score is horrible. If she is on the deed when refinancing, I was told the bank will base the terms on the person with the lowest credit score? What if she was willing to let us borrow against her half as well would her credit make this harder or impossible? Would it be advisable to ask for her to be completely removed from the deed? Would doing this require us to purchase the home conventionally(I think I'm using this work correctly) and require closing costs, property tax increase, and a down payment?

Notes

My wife does not have any income so not sure her better credit score(730) will affect anything.

The Question

What would the experts of this community recommend doing? Are there any options that we are unaware of? We are not very educated in this area and want to get into real estate rentals but don't have much capital. This seems to be an approach to some capital with not many down sides. Let me know your thoughts.