Federal Pacific Electric Panels must be replaced??

Multi-Family and Apartment Investing
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Federal Pacific Electric Panels must be replaced??

Ki Lee
Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes

I have a 36-unit property under contract in Columbus, OH.  It's built in 1963 and has the old Federal Pacific electric panels.  The inspector said they present some fire hazard and some insurance carriers will not insure them.  Google articles seem to say that they are fairly dangerous.  How many of you have buildings with Fed Pac Panels?  How real are the hazard/dangers with them?  Are they over-sensationalized?  Trying to find the balance between being safe and also being mindful of spending too much.  It can cost up to $50K to replace all the panels.  And being a class C apartment, I want to try to be really lean and efficient.  It looks like I can find an insurance carrier that will cover the building.  Do you think that I can get by without replacing the panels?  Or is this a huge time bomb waiting to explode?  Millions of these have been installed from the 60's to the 90's and surely we don't have buildings burning down left and right?

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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
6y

Not only do some insurance carriers dislike them, so do some lenders.  Fannie Mae has published guidelines related to these panels and they require the replacement of the panels in order for them to originate a loan on the property.  However, this requirement can oftentimes be avoided if you can get a licensed electrician to inspect the panels and write a letter saying that they are stable and safe.  Sometimes you can get that letter, sometimes you can't.  If you can't, replacement is your only option if you want agency financing.

Insurance companies are similar in that some will just flat-out refuse to write the policy.  Others will write, but at a much higher rate.  If your replacement cost is $50K, at a 6% cap rate your break-even point is $3,000 per year.  In other words, if your policy with the panels remaining is $1,000 higher than if you replaced them, leaving them alone is a better option.  But if the premium is $4,000 higher replacing them is the better approach because $4,000 of extra income at a 6% cap rate is worth $66,000 of additional property value.

This issue only applies to the "Stab-Lok" variety of the Federal Pacific Electric line of panels.  Other panels by that manufacturer are not affected by this issue.  Zinsco panels are the next ones to pop up on radars--I haven't seen resistance from lenders yet, but insurance carriers are starting to upcharge when those panels are in place.

Are these a hazard?  Who knows, really.  I have a Zinsco panel on my house and in the 20 years I've lived here haven't had a single problem.  But I guess that doesn't mean that my house won't burn down tomorrow--maybe my number just hasn't come up.

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  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    6y

    Not only do some insurance carriers dislike them, so do some lenders.  Fannie Mae has published guidelines related to these panels and they require the replacement of the panels in order for them to originate a loan on the property.  However, this requirement can oftentimes be avoided if you can get a licensed electrician to inspect the panels and write a letter saying that they are stable and safe.  Sometimes you can get that letter, sometimes you can't.  If you can't, replacement is your only option if you want agency financing.

    Insurance companies are similar in that some will just flat-out refuse to write the policy.  Others will write, but at a much higher rate.  If your replacement cost is $50K, at a 6% cap rate your break-even point is $3,000 per year.  In other words, if your policy with the panels remaining is $1,000 higher than if you replaced them, leaving them alone is a better option.  But if the premium is $4,000 higher replacing them is the better approach because $4,000 of extra income at a 6% cap rate is worth $66,000 of additional property value.

    This issue only applies to the "Stab-Lok" variety of the Federal Pacific Electric line of panels.  Other panels by that manufacturer are not affected by this issue.  Zinsco panels are the next ones to pop up on radars--I haven't seen resistance from lenders yet, but insurance carriers are starting to upcharge when those panels are in place.

    Are these a hazard?  Who knows, really.  I have a Zinsco panel on my house and in the 20 years I've lived here haven't had a single problem.  But I guess that doesn't mean that my house won't burn down tomorrow--maybe my number just hasn't come up.

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  • Michael King
    Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
    6y

    Ask your insurance provider if they'll insure the building. If they say yes, will you replace them? Probably not. If they say no, will you shop for another provider? Probably yes. Your panels have been the same level of dangerous since 1963. They seem to be doing okay.

    1Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    @Ki Lee

    If you have 36 Stab-lok panels, that’s 36x the chance of fire and way to many lives at stake. They are bad news.

    4Reply
  • Ed W.
    Investor / Landlord · Columbus, OH · Member since 2015 · 276 posts · 174 votes
    6y

    @Ki Lee I'm not smart enough to know what the particular percentage of these panels start fires but the question should not be what your cost is going to be, the question is how much danger your tenants will face.  If I were in your shoes, I would pay a competent and unbiased electrician to inspect the panels to determine if they are safe or not.  If they can't determine that, I would bite the bullet and change them out.

    Here's what I can guarantee you.  If there is a fire and there is an injury there will be a lawsuit.  The attorney representing the plaintiff will, at a minimum, do an internet search of your name and your company name and will quite possibly find this forum thread.  It will show that you are on notice and, so far at least, it will appear that you are making a decision based on your wallet at the possible expense of lives.  I'm not saying that is how you will make your decision - I don't know you and I don't know how you actually make your decisions - but I do know how this will look in a court of law - horrible.  The only question for a jury will be how large they want to make the settlement and the question for the DA will be - was this a case of reckless endangerment and should someone go to jail (this part regarding a District Attorney is speculation on my part from too many episodes of Law and Order but you should consult an attorney to see what your legal responsibilities and legal liabilities are).

    3Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    They are a known fire hazard, blacklisted by many insurers and lenders for that very reason.

    From a financial standpoint, I would not want to be defending ($$$$) against lawsuits for the deaths of X number of adults and children who burnt to death because of a Stab-Loc panel, possibly looking to pierce the veil to satisfy a judgement.

    From an ethical standpoint, I want to rent safe housing to people and pets, not industry known hazardous housing.

    From an Asset Managers standpoint, I don't want Stab-Loc's (or the like) in my portfolio, any more than I'd want something that failed a Phase I Environmental Inspection.   

    Kind of reminds me of this: https://www.youtube.com/watch?v=veMiNQifZcM

    Just my 2 cents.

    1Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    You have to replace them. Even if someone would insure them, I am not sure it would alleviate your liability when they start a fire. And based on all of the evidence, it's common knowledge that they are dangerous and a hazard, especially on a larger scale where your liability is increased.

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  • Jason BottPro Member
    Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    @Ki Lee your premiums will most likely be 2x or more if you do not replace them.  We work through this with our clients on a monthly basis.

    We have a client in OH closing on a 55 unit with Federal Pacific breakers.  The seller is aware of the insurance issue and they are working together to get these replaced, some before closing and some after.  Because of this the client will be able to go with the low cost policy at the time of purchase.

    1Reply
  • Michael DangPro Member
    Rental Property Investor · Houston, TX · Member since 2015 · 454 posts · 273 votes
    6y

    All good info from previous posters.  Think of your exit strategy with those FP panels.  The next buyer may avoid purchasing your deal or they may not be able to find insurance and/or lenders that will accept those panels.  It'll cost you more tomorrow than today.

    2Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Ki Lee I would say electric panels aside buying this type of asset long distance is a bad idea.

    Have you owned rental property before ?

    1Reply
  • Ki Lee
    OP
    Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes
    6y

    Thanks, @Caleb Heimsoth.  Appreciate your concern.  My partner and I have had rental properties for the past 10 years.

    2Reply
  • Ken P.
    Rental Property Investor · Northville, MI · Member since 2013 · 264 posts · 183 votes
    6y

    We bought a student rental house in OH with Federal Pacific panels that were flagged during pre-purchase inspection.  After reading up on the panels and associated fire risk, we asked the seller for credit at closing, and ended up splitting the cost of replacement.  Once we realized the risk, there was never a question of not replacing the panels, because our daughter and her friends were going to be living in the house (an approach I often use as a handy yardstick when deciding how much work to do on Class C properties).  Have you approached the seller with a proposal to cost share replacement? This isn't a case of retrading just to get a lower price, this is a question of addressing a real problem that you were unaware of at the time you made your offer.

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Brian Burke:

    This issue only applies to the "Stab-Lok" variety of the Federal Pacific Electric line of panels.  Other panels by that manufacturer are not affected by this issue.  Zinsco panels are the next ones to pop up on radars--I haven't seen resistance from lenders yet, but insurance carriers are starting to upcharge when those panels are in place.

    Are these a hazard?  Who knows, really.  I have a Zinsco panel on my house and in the 20 years I've lived here haven't had a single problem.  But I guess that doesn't mean that my house won't burn down tomorrow--maybe my number just hasn't come up.

     😅 Let's hope your number isn't up for a while! 

    I have one property with a Zinsco. I haven't had any problems with it but next time I do a reno on that house I will replace it anyway, as there's just no more capacity in the box. I'm amazed you can still get the breakers for them - I had to order a double-pole for an AC unit and had no trouble getting one (through the mail, local suppliers had nothing). 

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  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Ki Lee anyone selling a property with federal Pacific knows they are going to get the replacement cost negotiated out of the purchase price. Same as a worn out roof

    1Reply
  • Ki Lee
    OP
    Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes
    6y
    Originally posted by @Ken P.:

    We bought a student rental house in OH with Federal Pacific panels that were flagged during pre-purchase inspection.  After reading up on the panels and associated fire risk, we asked the seller for credit at closing, and ended up splitting the cost of replacement.  Once we realized the risk, there was never a question of not replacing the panels, because our daughter and her friends were going to be living in the house (an approach I often use as a handy yardstick when deciding how much work to do on Class C properties).  Have you approached the seller with a proposal to cost share replacement? This isn't a case of retrading just to get a lower price, this is a question of addressing a real problem that you were unaware of at the time you made your offer.

    Ken, We did negotiate a reduction of large sum from the initially agreed price, so a further reduction will likely blow up the deal.  We will most likely bite the bullet and change them out. 

    0Reply
  • Ki Lee
    OP
    Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes
    6y

    Thanks, everyone.

    This has been helpful.  More than just the financials, I see the importance of providing a safe environment for tenants.  It's impossible to make anything 100% safe, but this seems like something that can and should be done by landlords to mitigate tenant risks.  My partner and I decided to get the panels replaced to proper, code compliant panels.

    0Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    6y

    @Ki Lee I would 100% get rid of them. My neighbor lost his house to one a few years back. In my area, insurance companies don’t want them. It’s also understood when you are under contract to buy a property that has one, the current owner pays to replace it before the closing.

    1Reply
  • Jonathan Smith
    Moseley, VA · Member since 2016 · 115 posts · 60 votes
    6y

    @Ki Lee

    Yes, the federal pacific panels need to be replaced. They are fire risk and usually you can not get insurance on the house. At least in Columbus Ohio that was the rule of thumb. If you saw one as an inspector it had to be replaced so the buyer was getting a new panel.

    2Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    6y
    Originally posted by @Ki Lee:

    I have a 36-unit property under contract in Columbus, OH.  It's built in 1963 and has the old Federal Pacific electric panels.  The inspector said they present some fire hazard and some insurance carriers will not insure them.  Google articles seem to say that they are fairly dangerous.  How many of you have buildings with Fed Pac Panels?  How real are the hazard/dangers with them?  Are they over-sensationalized?  Trying to find the balance between being safe and also being mindful of spending too much.  It can cost up to $50K to replace all the panels.  And being a class C apartment, I want to try to be really lean and efficient.  It looks like I can find an insurance carrier that will cover the building.  Do you think that I can get by without replacing the panels?  Or is this a huge time bomb waiting to explode?  Millions of these have been installed from the 60's to the 90's and surely we don't have buildings burning down left and right?

     Yup this is all correct. Fed Pacific panels need to be replaced.

    2Reply
  • Ben Guttman
    Specialist · Baltimore, MD · Member since 2017 · 418 posts · 126 votes
    6y

    @Ki Lee this is a No No for most carriers. It may be hard to get a loan or insurance without replacing them.

    1Reply
  • John Montgomery
    Member since 2019 · 52 posts · 37 votes
    6y
    Originally posted by @Brian Burke:

    Not only do some insurance carriers dislike them, so do some lenders.  Fannie Mae has published guidelines related to these panels and they require the replacement of the panels in order for them to originate a loan on the property.  However, this requirement can oftentimes be avoided if you can get a licensed electrician to inspect the panels and write a letter saying that they are stable and safe.  Sometimes you can get that letter, sometimes you can't.  If you can't, replacement is your only option if you want agency financing.

    Insurance companies are similar in that some will just flat-out refuse to write the policy.  Others will write, but at a much higher rate.  If your replacement cost is $50K, at a 6% cap rate your break-even point is $3,000 per year.  In other words, if your policy with the panels remaining is $1,000 higher than if you replaced them, leaving them alone is a better option.  But if the premium is $4,000 higher replacing them is the better approach because $4,000 of extra income at a 6% cap rate is worth $66,000 of additional property value.

    This issue only applies to the "Stab-Lok" variety of the Federal Pacific Electric line of panels.  Other panels by that manufacturer are not affected by this issue.  Zinsco panels are the next ones to pop up on radars--I haven't seen resistance from lenders yet, but insurance carriers are starting to upcharge when those panels are in place.

    Are these a hazard?  Who knows, really.  I have a Zinsco panel on my house and in the 20 years I've lived here haven't had a single problem.  But I guess that doesn't mean that my house won't burn down tomorrow--maybe my number just hasn't come up.

     I have quite a bit of experience with the Zinsco panels but not the Fed Pac panels. I have "shorted" out circuits with them and the breakers often will not throw; cutting the power and providing the protection that they are supposed to. One time a neutral wire got so hot that some of the insulation melted off and probably would have started a fire if I didn't pull the wires apart. If the Fed Pac panels have similar issues then it is a serious danger. If you're not working on electrical then the dangers are much less likely but circuit breakers are there to protect against unlikely but serious events. I would hate to be responsible for a tragedy because I avoided a $50k renovation.

    1Reply
  • Gordon Starr
    Rental Property Investor · Dayton, OH · Member since 2015 · 312 posts · 273 votes
    6y

    When I was first starting out, I left these panels in place at a few places including my own home .. and didn't have insurance. I also risked my neck in a lot of ways investigating abandoned houses. People often start out taking on massive risks because they cant afford the insurance or safety upgrades. Over time I have changed these panels out and it gives me peace of mind. Its a new strategy since I now have more money. It is not difficult electrical work and your stated price sounds way too high by Ohio standards. Shop around..

    1Reply
  • Jaya Duraisamy
    West Chester, PA · Member since 2015 · 4 posts · 1 vote
    6y

    Two years We acquired 44 units with Fed Pacific panel. We replaced it all. It cost us 25K. We got an awesome electrician.  The borough charged 60 dollars inspection fee per panel and the outside third party electric inspector changed additionally. The inspection change cost  alone is over 5K. For 25K job, we had to pay over 5k inspection fees... atrocious....

    1Reply
  • William Coet
    Lititz, PA · Member since 2013 · 595 posts · 272 votes
    6y

    Disclaimer:  Do all of your own research on this subject, and it is always better to err on the side of caution:

    I have been told by an electrician and an inspector that not all FedPac panels are dangerous, and that it was specifically the Stab-lLok panels.  I was told a company named Challenger purchased FedPac and made panels that were not the fire-hazard that Stab-Lok are.

    0Reply
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