Knob and Tube Wiring on 3 Unit Properties
Realtor · Pawtucket, RI · Member since 2016 · 166 posts · 47 votes
Hello BP Family,
I just got a home inspection for a 3 family property and found a few items that I want your advice on a property I just had a home inspection on in Woonsocket, RI.
1.) The seller was told that there is knob and tubing wiring and it is 99% inactive. Come to find out, the inspector stated that the knob and tube wiring throughout the property is 99% if not 100% active and needs a junction box and fix some of the splicing.
2.) The 1st floor bathroom has significant water damage to the drywall in which I will need to put in a new bath fitter and repair any and all moisture damaged areas.
3.) Install new gutters and downspouts around the house.
Just to add context the property is fully rented 1st unit 2 bed 2 bath rent: 895 2nd unit 3 bed 1 bath rent: 995 3rd unit 3 bed 1 bath 720. The 3rd unit needs some cosmetics repairs, nothing immediate. Other 2 units are in good condition.
Thoughts?
@Raymond Hill the active knob and tube is probably your biggest challenge there. It might prevent the bank from being willing to do the loan, it will almost certainly cause you difficulty getting insurance, and it’s just a big liability for you in general. That alone could kill the deal right there just because of the financing & insurance impact.
Depending on your appetite for risk, if you really love the property/deal and the bank doesn’t specifically ask about knob and tube (and their appraiser doesn’t notice it), you could possibly close and then immediately (like day of/after closing) begin rewiring the entire property. But that’s still risky, and not a cheap project at all, and obviously you’d have to have enough cash to pay for that separately since you won’t be able to finance that repair :)
(And I’m not telling to do that, at all, I’m just talking generally about what you could do. Consult with your own attorney & advisors before taking advice from the Internet, of course :D)
As far as the other two items, I’d say just get quotes on the work and either negotiate with the seller if possible, or adjust your purchase price accordingly. I always recommend factoring in the more expensive solution, and rounding up, and then if you do go forward with the purchase to see if there are any cheaper (but still acceptable) ways of fixing the problems (e.g., maybe not all gutters and downspouts need to be replaced).
You do want to make sure with #2 though, that you fully understand what the source of the problem is/was so that you’ll be fixing the source of the problem and not just treating a symptom. And you also want to be sure that, depending on how long the problem has existed, that there hasn’t been mold growth far beyond the visible area of the problem. You can search for “detect mold in drywall” to get a sense of some options for investigating that.
@Raymond Hill the active knob and tube is probably your biggest challenge there. It might prevent the bank from being willing to do the loan, it will almost certainly cause you difficulty getting insurance, and it’s just a big liability for you in general. That alone could kill the deal right there just because of the financing & insurance impact.
Depending on your appetite for risk, if you really love the property/deal and the bank doesn’t specifically ask about knob and tube (and their appraiser doesn’t notice it), you could possibly close and then immediately (like day of/after closing) begin rewiring the entire property. But that’s still risky, and not a cheap project at all, and obviously you’d have to have enough cash to pay for that separately since you won’t be able to finance that repair :)
(And I’m not telling to do that, at all, I’m just talking generally about what you could do. Consult with your own attorney & advisors before taking advice from the Internet, of course :D)
As far as the other two items, I’d say just get quotes on the work and either negotiate with the seller if possible, or adjust your purchase price accordingly. I always recommend factoring in the more expensive solution, and rounding up, and then if you do go forward with the purchase to see if there are any cheaper (but still acceptable) ways of fixing the problems (e.g., maybe not all gutters and downspouts need to be replaced).
You do want to make sure with #2 though, that you fully understand what the source of the problem is/was so that you’ll be fixing the source of the problem and not just treating a symptom. And you also want to be sure that, depending on how long the problem has existed, that there hasn’t been mold growth far beyond the visible area of the problem. You can search for “detect mold in drywall” to get a sense of some options for investigating that.
3) is something you should fix, and maybe ask for some money back, but not a big problem deal-wise.
2) bath fitter type fix might not be a great solution if it’s just covering the mold. You really need to pull the affected tile/drywall out. Maybe not a big deal, but if it’s gotten down to the studs or dripped down, could be a bigger project. Plus, might be more than just a 1-day repair, which might mean tenants need to be relocated, etc.
1) that’s a big difference. A house with a few lighting circuits if knob and tube are one thing... but when you’re running higher load devices like microwave, refrigerator, hair dryer, etc... I’m less comfortable with it. I try to replace all the K&T in my houses. It’s a big project, plus you’ll need some plaster/paint repair afterwards too. Also difficult to do with tenants in place.
We’re you planning on some renos on these apartments anyway? If yes, then deducting the purchase price might make sense. If you weren’t, you might want to consider finding another property.
Also remember, even if the seller knocks the price down $10-15K, your mortgage would go down as well, meaning the repairs will come out of your pocket. May or may not be an issue based on your reserves and plans!
Good luck!!
@Anthony Thompson With the knob and tube situation is the major concern for me. I walked in originally being told by the seller that there is k/t wiring, but it is not active to now finding out most if not all are active according to the report. @Mike McCarthy Thank you for your insight and you both bring up very valid points. All the tenants are in the units at this time. I was thinking of possibly repairing each unit gradually. For instance, I can have the tenants stay in their respective units for a year and then start making repairs to the 3rd unit first and remove the k/t wiring from the attic and in the unit. Then eventually work my way down whenever there is turnover in the other two units. Thoughts? Or do you feel the k/t should be address immediately?
@Raymond Hill - How long has the house been on the market?
1. Knob & Tube wiring -There is a reason why Master Electricians and Master Plumbers require Licensing and its because the potential for harm on many levels is relevant - Let the sellers know you may have a problem with the inspection from the lender and the insurance may deny me coverage. We can do a deduction for the cost of removal and rewiring & ill have my electrician give me a proposal with a start date so the inspector & insurance company will have trust in me to get this done.
2. Significant water damage may require more work than just replace the bathfitter. Fix source of leak, remove all areas affected, etc..
3. Gutters and downspouts. Get a quote for the LF that needs replacement. Based on LF and layout description, # of downspouts, etc.. they can give you a ballpark unwritten quote over the phone. How many sections are there, how much total LF....Do the spouts discharge at street level or are they tied-in to the underground drain?
@Raymond Hill I would ask for a repair credit at closing for the knob and tube wiring that mistakenly was reported to you as inactive. I had a similar situation with my first 4 unit property, I used a license electrician that is a friend to cut out all the knob and tube out of the basement and RE wire only the basement. This way if any inspector or insurance company checks it out it will be considered free of knob and tube. Knob and tube is perfectly safe as long as it is in good condition and insulated. You don’t want the seller fixing anything, they will use the cheapest person and cut corners. Also just an FYI if you try to ask the seller to cut out all active Knob and tube the seller will laugh and sell to the next buyer. That is a very large project with tenants involved and in a large older multi family property. Also if you have any questions about the water damage removal, I own a water damage/mold/fire damage company out of MA.
@Mike McCarthy @Ryan Short @Anthony Thompson @Anthony Rosa I deeply appreciate you all assisting me. This is a big help. Judging by all your responses. I feel that I should do the following. Please let me know if you agree.
1.) Ask for a repair credit off the purchase price after obtaining a quote from a license electrician on the cost to rewire the property. If the k/t wiring is prohibiting me from getting the loan or factors into getting insurance then I can ask the seller to rewire the visible k/t wiring in the basement area. What I can try to do is anytime there is turnover, open the walls up in each unit to remove the k/t and rewire where possible. I just spoke to my mortgage lender and he did say that if the knob and tube wiring is exposed in the basement and its active (which is it) then more than likely our loan will be denied because the inspector will spot it and red flag it on site. He asked that I keep him posted.
2.) Ask the seller to repair the bathroom area, or ask for a repair credit in this case. The home inspector stated that the repair could cost anywhere from 1K - 3K depending on the water damage if its down to the studs I am looking at a bigger remodeling project in that bathroom area.
3.) Installing gutters, there currently is not any visible moisture in the basement and running a dehumidifier will assist with this. I have a guy going to get me a quote on installing that gutters for the property, there are a bunch of cuts and corners on it so I am expecting it to be a sizeable job around 2K - 5K.
Been there, done that, walked out of a deal.
I doubt there is such thing as 99% inactive K&T wiring. One can find K&T wiring throughout a house, in the basement where it is visible, hidden in the walls and attic. As a fire and electrical hazard, K&T wiring is a major liability concern for REI. K&T is two-wire with no ground. Electrical panels and GFCI outlets mixed with K&T do not work as advertised and, more likely than not, present an additional hazard since not many people know how to safely integrate the two wiring types.
Rewiring a K&T house is disruptive because, among other things, it involves opening the walls. Doing so in a rented, furnished house is a major undertaking. Asbestos and lead paint, if present, add to the challenge. My advice: unless you are prepared to move the tenants out, walk out of the deal.
Disclaimer: I am an electrical engineer, not an electrician.
@Alex G. Thank you Alex for your input, things aren't looking so well with the k/t info advice everyone is telling me. It is a bit more troubling then what I initially walked in on. It's tough since I have been looking for over a year and found this property that seem like a great deal. Again, I have not received the home inspection report, and I think I'll get an electrician to take a look at all the units to see if maybe there is some k/t wiring, but maybe there inactive in some areas. In which that is less daunting versus the entire house have active k/t wiring. I am hoping what the seller told me is correct, then again if I am relying on the seller to be 100% honest then I am 100% foolish.
@Raymond Hill every seller says that the knob & tube is inactive.
I have no idea what percentage of time it's actually inactive, but for all intents and purposes, because sellers always say it's inactive, you can disregard what they say completely and know that if you see any knob & tube at all (usually in the basement or attic) you will have to specifically inspect that because there's a very non-negligible chance it will be active on at least some circuits in the building.
I can't in good conscience say that you should close on a property with any active knob and tube, even if you plan to rewire the house, because I do think you have a significant amount of liability for the time between when you close, until the house is rewired. I'm not an attorney, but in my non-professional opinion, the knob & tube is a hazardous condition and you definitely knew about it before closing so that's not a good setup.
Is it likely something would happen between closing and when the rewiring is done? Probably very unlikely. But it's not a risk I'm willing to take. And it's not a risk your lender and insurance company are willing to take either, so that should tell you something.
As for the other two items, the gutter/downspouts seems like the easiest (just round up on the estimate and price it in), and with the bathroom issue I'd personally probably just assume a remodel of that bathroom and price it in accordingly. If you can get away with doing less than a full remodel, great, but at least you've already priced in the worst case.
@Anthony Thompson You bring up a very good point Anthony. The other two items are things I can definitely address after taking ownership. In this case having the bathroom and the gutters repaired are items that are not detrimental but can be addressed. With the K/T situation, I am going to be speaking with the home inspector this afternoon and I have an electrician that can give me a quote on the whole rewiring aspect. In addition, since the seller did say that the k/t is inactive. I am going to contact her as well and ask her to supply documentation that it is inactive or get me in contact with whom told her this information. I rather exhaust all options before walking away from this deal which is pretty much going south quickly. THANK GOD FOR HOME INSPECTIONS!
In my market this is no big deal . I’d go for it ! In your area being liberal you probably have crazy hoops to jump through to get financing on ur and insurance headaches that will inspect everything with a fine tooth comb
@Dennis M. I’m happy to defend the bay state on this one I think it’s actually easier here to deal with because so many of the houses that are older still have the knob and tube stuff. The banks are used to it the electricians are used to it and this is a factor that really shouldn’t scare you. Out in central mass retail cost for a house is about $7500 up to 12000for the big old Victorians.
@Dennis M. I’m happy to defend the bay state on this one I think it’s actually easier here to deal with because so many of the houses that are older still have the knob and tube stuff. The banks are used to it the electricians are used to it and this is a factor that really shouldn’t scare you. Out in central mass retail cost for a house is about $7500 up to 12000for the big old Victorians.
Where I’m at they don’t even care if it’s knob and tube no one even requires you to swap it out . Some of the lessor known mom and pop insurance agency’s won’t actually come out and inspect the house either so it works out nicely
@Dennis M. That’s actually been our experience even in the Boston area. Usually property values are high enough that Seller is prepping for max dollar They’ll have it done.
@Jonathan R McLaughlin @Dennis M. I think what I am going to do after speaking to my home inspector is use the knob and tube as a bargaining tool as previously discussed. See where they want to take it as far as a counter offer. From there, if they don't budge I will contact the appraiser myself and let them know that the property has knob and tube in the home in which then she will most likely deny the loan from moving forward until the exposed wiring is repaired. That way I can get them to remove some of the knob and tube and stay within my mortgage contingency so I don't lose my deposit either.
I think, because the seller told me that the knob and tube was inactive and unable to show me proof nor is she able to tell me where she got this information from. I feel that she deliberately tried to hid it so now I am going to try to see what she will do once I get the home inspection report.
What are your thoughts?
@Raymond Hill It depends on whether you want the property or not, right? if you do it’s probably not urgent to fix and while it’s a pain in the *** it’s pretty straightforward. you just need to get a price for it. So if you do want the property I’d get someone licensed to give you a ballpark quote, show her the quote and ask for that much off.
I don’t think the appraiser would have the bank deny The loan; maybe they knock off a few thousand off the value. If you want to increase leverage I would just send the hard copy section of the inspection report on active knob and tube to the Broker and now she has to disclose to subsequent buyers. I don’t think you have to get too cute In pulling out just say inspection results unsatisfactory.
You will definitely find someone to insure it, might be a bit more expensive
@Jonathan R McLaughlin @Dennis M. I think what I am going to do after speaking to my home inspector is use the knob and tube as a bargaining tool as previously discussed. See where they want to take it as far as a counter offer. From there, if they don't budge I will contact the appraiser myself and let them know that the property has knob and tube in the home in which then she will most likely deny the loan from moving forward until the exposed wiring is repaired. That way I can get them to remove some of the knob and tube and stay within my mortgage contingency so I don't lose my deposit either.
I think, because the seller told me that the knob and tube was inactive and unable to show me proof nor is she able to tell me where she got this information from. I feel that she deliberately tried to hid it so now I am going to try to see what she will do once I get the home inspection report.
What are your thoughts?
So Your willing to miss out on a good deal for that ? Geez I’ve bought with far worse situation than this .Have you even had anyone that was a contractor tour the place with you to give you a true assessment of the repairs or are you just getting cold feet .
@Jonathan R McLaughlin I do want the property for it is a great stepping stone for my fiancee and I to start investing. I do not want to pull out of the deal, I just think that this is definitely a bargaining tool that I can use to my advantage to make the deal better for me. I understand the insurance is a key factor and I am factoring these costs into the equation. Overall this is a property I want to keep for the long term.
I deeply appreciate everyones input. Please keep adding your two cents. I'm very appreciative.
@Dennis M. I am not getting cold feet. I am only throwing out ideas and getting feedback on it with everyone here. I am scheduling a walkthrough with a contractor once I get my hands on an inspection report. So I can communicate the repairs with them as well. As stated previously, I know its a good deal just looking to make it a great deal given the situation.
If I was the seller I’d probably make a deal on the knob and tube but not for full price, but that’s just me
@Jonathan R McLaughlin I agree, that is all I want them to do. But once I get the home inspection report I'll know more.
Sounds like you have good grounds for a retrade to request a reduction in the price.
Really You should be learning how to do this yourself instead of relying on others . It isn’t that difficult to learn home inspection and repairs estimations .
Thanks for your input