Well MIL has told us that she would have to pay a large amount of tax to sell the house and if she sells to us then she wont have to pay it or pay such a high rate.

My SIL is living in her other house, down near Byron Bay and that house she wont sell. She will probably let her daughter stay in that house as she wants to build another ECO friendly house on a block of land in the same area.
She also owns a house in Italy. So I don't see her having any financial difficulty or a place to live!
My SIL said we would be crazy not to buy it and she would snap it up if we didnt!
We are still paying a lot more than she originally paid for it!

Also MIL isn't an Australian citizen so I am not sure if she would get help from the government if she needed it.

Thank you for all your advice and info. We are starting our journey with Financial advisors then heading on to banks and our family friend who is a lawyer to work out all that info briggsy's girl!