Should the family rent or sell Mum in law's house to help with care home fees?

mothgirl

My dear sweet mother in law is now settled in a care home. She is 93 with dementia and my husband and his sister have power of attorney. She has savings of, I believe, around £100k and a good pension. The pension covers about half the fees, so the rest is coming from savings.

Her house is worth about £400k. It is not suitable for renting but my idea is to sell it and buy a smaller house that is suitable for renting. My thinking is that it would be good to have an income to supplement my mother in law's pension to help with the care home fees, rather than just continually eating into her savings and then, possibly, capital if we sell the house. However, my brother in law - who has taken charge of all her finances and organised the house valuation - disagrees and thinks we should just sell the house and invest the proceeds in some kind of low risk investment (he would want to take financial advice on this). My sister in law and my husband do not know what would be best. Neither of them are computer literate, so I said I would ask the question here.

So - if I am prepared to handle letting agents etc, and I am - would it be wiser to sell her house and buy a smaller one suitable for letting or simply sell her house and invest the money?

Marvel1

I cannot answer what is best, my only advice would is to research what being a landlord involves - a lot more than receiving rent money.

Based on the last paragraph, I would feel this is best posted in the Savings & Investments board.

00ec25

who has the legal power of attorney over the MIL's financial affairs?

they are the ones who get to decide what is best, not you. taking proper financial advice from someone qualified to give it would be key to such a decision.

if there is no PoA in place and MIL already has dementia then that is a bigger problem than what to do with the house.

Keep_pedalling

Statistically it is unlikely that your MIL will be in care beyond 2 years, therefore I think your BIL is correct. The effort in doing this and the fees of buying and selling (x2) is simply not worth it. Your MIL is in the fortunate position of being able to be able to comfortably meet her self funding requirements so there is no need to take any risks with her money.

Keep it simple sell the house and stick the money in NS&I where although it only earns a small amount of interest it is 100% safe. Remember as PoAs her assets must be used in her best interest alone, considerations for future inheritances should not come into it.

Pixie5740

You would need to sit down and crunch the numbers. If the property was sold and you bought another to let using the proceeds of the sale you would eat up £10k in SDLT plus more solicitors fees and a survey so maybe you'd be left with £386k to buy somewhere. That property would then need to generate rent of £1,608.33 pcm just to achieve a gross rental yield of 5%. Do you think that kind of rent is achievable?

Alternatively you could buy 2 smaller properties but the total SDLT paid would be about the same as buying one more expensive property and those properties would need to be bringing in £805 pcm to achieve a gross rental yield of 5%. Again I don't know what area you would buy in so I have no idea if that's even achievable.

If you're going to use a letting agent then that's probably going to cost around 10% of the rental income plus more fees for finding tenants etc. Then you need to factor in other costs such as void periods, insurance, maintenance, gas safety certificates, income tax, etc and by the time you've done that you might find that it's not worth the hassle and that BIL is right.

Selling and putting the proceeds in a low risk savings or investment vehicle is probably what I would do if I were in the same situation.

cloo

I'd get a financial adviser in on this and all sit down with them to consider the best solution.

xylophone

who has the legal power of attorney over the MIL's financial affairs?

OP says in first post

She is 93 with dementia and my husband and his sister have power of attorney.

The Attorneys might not wish to take on the responsibility of being landlords.

The Attorneys might wish to consult a SOLLA Independent Financial Adviser.

https://societyoflaterlifeadvisers.co.uk/

Statistically it is unlikely that your MIL will be in care beyond 2 years,

Possibly, but I have been acquainted with those who have lived in care well beyond the mid nineties........

Keep_pedalling

Yes, there are a few residents in my mums care home who have been there 4 years or more, none have advanced dementia though.

If the OPs MIL only has mild dementia and has been admitted for other reasons then her prospects of living longer are greatly enhanced.

Linton

I agree with your brother in law. Sell the house and safely invest the money with the advice of an IFA. Attorneys must act in the donor's best interest. If it is worth doing at all a BTL is a long term investment as you need to recoup the buying and possible redecoration costs and hope for significant long term capital gain. Long term investments arent much use to MIL. How is setting up a rental business with her money in her best interest?

Fosterdog

It's getting harder all the time to actually make any money from renting so the costs involved with buying a house, landlord insurance, annual gas safety checks, court cost should a tenant need evicting, maintenance costs etc. it's really not a sensible option in your scenario. It is tough enough for people choosing to do it for themselves with their own money but to do it with someone else's is asking for a whole host of problems down the line.

ERICS_MUM

This sounds very callous but I'm just being practical. Buying a house to rent out is a longer-term investment, the first couple of years rent (at least) will be paying for the sale and purchase taxes and expenses. The next year's income would provide cover for maintenance and refurb over the next few years. It's likely that you won't show a true profit for a few years. If your MIL dies during this period you will incur yet more costs when selling the property.

I know it appears a better investment than money in the bank but I don't think it stacks up in the relatively short time you are likely to need the income.