Real estate and family [View all]

I have a question and would like to get some input before making a decision. My older brother and his wife are retired, both accountants for the state where they lived, with pensions and social security. They bought a new house a few years ago and are now underwater. I am the "poor" one in the family but I do own my (far less desirable) house free and clear and have a very good credit rating because I have been careful to live well within my means for many years. My brother is at the point, given that his house can't be refinanced at a reasonable rate and has many, many serious problems - it's basically a lemon - that he is ready to walk away. However he lives in a state where that is more difficult. He doesn't want to jump into an even worse situation but he is edging over into desperation.

Lately my husband and I have talked about buying a property to rent out as an investment. Places are very inexpensive where we live with prices down and we could make more than we do with bank CDs and such. I shrank back from that (careful as I am) because it's fine if you have a renter but you have to come up with the payment if you don't. That scares me. Last weekend when my brother was visiting we talked about this and he said he would be delighted to pay a high rent if he just didn't have to worry any more about the place he has now and how it is tipping. We chatted a bit and looked up a few properties and they are considerably less expensive here that where he lives. I think he is seriously interested. We would love to have him and his wife nearby because we all get along very well and enjoy time together.

My question is whether this is a good thing. If my husband and I bought a place and rented it to my brother (whom I trust completely) for enough to pay us back for the down payment with interest within a few years and then dropped his rent to the amount due to the bank plus taxes and insurance but kept the property in our name with the provision that we would will it to him in case of our death...would that be a sound investment? It seems to me that it would help us (higher interest rate) and him (lower monthly cost and no more worry about the failing house he bought). Am I telling myself a story here?

Any thoughts? I am certainly not an expert on either finance or real estate. I would just like to get a bit more from my savings and also help my brother through a hard time.