Rental Property Investor · RI · Member since 2017 · 94 posts · 52 votes
I found a two family property that seems to cash flow well. Listed at 90k and gross rents are 1750. i am supposed to see the property this weekend, and while looking through the disclosures I noticed it listed fuse and knob and tube wiring, and asbestos siding. Is this often a hard pass?
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
8y
Not a hard pass, but that's why it's priced low. There are probably code violations. Look it up. If you move forward, agree to have the property inspected by the city building inspector and it must pass code to close. It will probably cost you a good $20 to $30K to repair all the issues.
I had researched asbestos siding when I was looking a couple years ago and as long as it is well maintained and not deteriorating it does not seem to be an issue and based on the multiple offers I was competing with it didn’t appear to have a price impact. If it’s in poor condition and needs to be remediated then I would expect it to be very costly. I had active knob and tube when I purchased my home. You may have trouble with financing or insurance. From what I was told most insurance companies will take issue with it. My insurance was fine with it since it had circuit breakers. I had the knob and tube replaced after closing anyway since I had both units vacant and I knew it could present a problem down the line. For $90k I would expect more items to come up.
Real Estate Broker · Provo, UT · Member since 2013 · 689 posts · 511 votes
8y
No hard pass on either of these.
If there's no current issues with power, then the K&T is might be okay. It technically is not "up to code", but it is (should be) grandfathered in. One challenge you could run into is if you have to make repairs to the electrical system in the future you may be required to update the entire system, which could get really expensive really quick, not to mention be a huge, huge, huge pain in the butt - including tenants vacating during the project, which is probably at least a couple days.
Asbestos siding is common. If it's in good shape there's no reason to swap it out unless you want to replace it with stucco or siding. One thing to note - it is asbestos, so taking it off causes a hazmat situation, which you are not supposed to do yourself (at least in my state).
Cost to deal with both of these things will vary based on the property, but in general, updating a panel and service is $2,500-$3,500ish. Rewiring a 1600 ft. property with open access to the basement and attic ranges $6,500-$9,500ish and that does not include fixing walls. If you're dealing with lath & plaster it's going to be messy and will likely lead to several unanticipated needed repairs.
IRC (your town probably adopted pretty much all the IRC rules) requires a master electrician to do all this work - you can't hire a handyman (well, you can, but it's not smart) to update your service or re-wire an entire house. Technically the only people that are allowed to mess with the panel are those who hold a master electrician license. Forget about being "cheap" on that project.
I had active knob and tube when I purchased my home. You may have trouble with financing or insurance. From what I was told most insurance companies will take issue with it. My insurance was fine with it since it had circuit breakers. I had the knob and tube replaced after closing anyway since I had both units vacant and I knew it could present a problem down the line.
I had K&T wiring when I purchased my house in the 1980s and my insurance company gave me a hard time.
I replaced the fuse-stat box with circuit breakers and the electrician doing the work said if I left K&T alone, it would leave me alone (many older homes in the neighborhood had K&T). He also said if I needed to add any outlets, he would run new wiring to those outlets from the circuit breaker box but leave the K&T as is. His take was splicing into K&T is what causes problems. My insurance company dropped the matter.
The K&T was still there when I sold my house in 2015 (I fully disclosed it in the selling documents).
The only items I couldn't "as is" out of when I sold my California home were the water heater had to be seismically strapped (many fires start after an earthquake topples the water heater) and the CO and smoke detectors. The buyers rehabbed the house and turned it into a McMansion, so I imagine they replaced the K&T.
Rental Property Investor · Cherry Hill, NJ · Member since 2017 · 119 posts · 60 votes
8y
Atleast in my state, knob and tube wiring is not illegal or against code. The issue is getting insurance. On the other hand... I’ve gotten insurance policies where the insurance company said they were coming out to inspect, they never did. Of course don’t count on this. I run into knob and tube all the time due to the age of the building, it comes with the territory.
Moseley, VA · Member since 2016 · 115 posts · 60 votes
8y
I would definitely get the knob and tube replaced because Its a safety hazard and insurance issues. Also would do the siding to get a good deal on the property. I would guess only certain people will look at this property so your competition would be limited which means maybe you can get a good deal. Replace both of the issues and will not have to worry about them at all. In Columbus Ohio any knob and tube has to be replaced because it is uninsurable. My two cents.
Rental Property Investor · RI · Member since 2017 · 94 posts · 52 votes
8y
Had a inspection and they said the first floor needs to be replaced. The tenets are running extension cords all over. the current owner does not want to do anything. I did find a insurance company who will insure it as is.
Should I move forward and have it replaced over the next few months? Or use a rehab loan to replace it now?