KNOB & TUBE - 35 Unit 1912 Apartment Building

[Preston Roth]

All,

I need some advice on a potential purchase that is coming down to the wire. Here are the specifics in a nut shell.

* In contract on 35 unit very well kept and clean building with 0-1% vacancy in Washington for 2.1 Million with a 7.2% CAP, which is good for the Washington area.

*After going through inspection it was determined the whole building is still knob and tube, it was highly suspected but wasn't fully determined until the walk through inspection.

*Current owner pays $4500 annual insurance expense, extremely low and I feel her insurance doesn't know its probably all knob and tube otherwise she would be paying a lot more.

* The best insurance quote I have had is 23k for building and general liability coverage, quite an increase and has a net affect on CAP rate to 6.9%

* I have asked for a reduction in price or rewire but seller is not willing to do. Take it or leave it scenario

*Im having an electrical contractor review the knob and tube to confirm integrity of the system

My questions and counsel needed are the below items

1. How concerned should I be with knob and tube, if the inspection on the system comes back positive? Anything I should do to ensure that protection? Or would you not purchase just because its knob and tube?

2. With a 18k increase in annual expense it seems like I should maybe look at rewiring the building to save that added expense, does anyone know on average what it might cost per unit to rewire? There are 19 one bedroom units and 16 studio units. There are no fuses FYI, breakers have been updated.

3. Does anyone have an electrical contractor who works in the Washington that they might refer to me for both the review and quote for rewire?

I really appreciate the help!

[John Mocker]

Preston,

Many companies have in their guidelines that they will not write a building with Knob & Tube Wiring.   Be wary of any quote from a standard market company.  Make sure that, if the application asks about it, the Knob & Tube is disclosed.  Also, get in writing from the agent that the carrier is aware of the knob & tube.  You do not want any issues at claim time.

Often, the excess lines (surplus lines) quotes you get will have more exclusions and lower coverage than a Standard market policy so be wary of that also.