Purchasing an investment house is exciting. There is literally nothing as good as the possibility of becoming a wealthy person based on real estate. In all the excitement of potential rental yields and capital growth, however, there is one important factor that most investors do not consider until when it is too late, and that is the electrical system.
Electrical problems are not only inconvenient, but they can be risky, costly to fix and in other instances, they may derail your investment plans. I have witnessed too many victims of property investors who were burned (sometimes literally), by electric issues they could not have noticed during the buying process. So this time we are going to discuss the things about the electrical traps that you must definitely watch when you are putting your signature on the dotted line.
Outdated Wiring Systems
One of the largest warning signs of an older property is obsolete wiring. When you consider a premise that was constructed prior to 1970, then there is high likelihood that the premise may have the old wiring system which is not rated as safe by the current standards.
An example is the aluminum wiring which was a popular option in the 1960s and 70s but is now considered to be a fire hazard because it tends to overheat at connection points. The non-grounded knob and tube wiring that is common among older homes is incapable of supporting modern electrical needs.
The tricky part? It is possible that these systems are in operation at the time you inspect the property. lights come on, electrical outlets are working, everything is okay. But lurking behind the walls is a system that is living on borrowed time. It is also prudent to have a qualified electrician Innerwest (or whoever is in your locality) take a proper inspection before an offer is made. They are able to determine whether the wiring should be replaced or not and provide you with an accurate estimate of the cost incurred.
Insufficient Power Supply
The situation described here occurs more frequently than you might assume: you purchase a property, your tenants move into the house with their new appliances and devices, and all of a sudden, the electric breakers keep tripping out. The problem? The electrical panel of the property just cannot cope with modern electricity requirements.
Elderly houses tend to have 60-amp or 100-amp service and this was acceptable when there were fewer electrical appliances in the house. Nowadays, air conditioning, multiple-computers, kitchen machines, and charging stations demand at least 200 amps.
Installing a new electrical panel is not the end of the world but it will be a second cost that you have to consider. More to the point, in case the property is not capable of serving the needs of modern life, you may not find and keep quality tenants who require such elementary features.
Home Grown Electricity Disaster.
You are looking at a house, and the last owner told you about some improvements he or she did, perhaps adding some outlets or lights. Looks great, right? Not so fast. Unless those changes were made by a qualified electrician and checked you might be sitting on a time bomb. DIY electrical jobs are shockingly widespread, particularly in investment homes where the former proprietors tried to cut some corners.
Some of the warning signs are a mismatch in the outlets, junction boxes that are not covered properly, lack of proper wires ties or any other additions that simply appear off. The property advisory services of professionals can guide you through these issues when buying and make sure that you know what you are getting into.
It is not only a matter of safety that amateur electrical work is a problem, but it is a compliance problem, as well. In case the work was not coded and not checked, then you may need to strip it down and redo it properly, particularly when you have a plan to make some renovation or when it is revealed through an insurance claim.
Lacking or broken Safety Switches.
Safety switches (also known as RCDs or residual current devices), are triggered to instantly shut down the power in case they detect an electrical fault and may thus avoid electrocution. They are now required in lots of jurisdictions to be fitted on all power circuits, particularly in rental dwellings.
In the case that the property you are looking at does not have some safety switches, or they are old-fashioned and do not work properly, you will have to handle this issue before renting out the property. This is not even negotiable but rather a legal obligation and a moral thing to do to ensure that your tenants are safe.
The safety switches are easy to test, and this should be conducted by a professional. Do not believe that they are working just because they are in the house.
Electrical installations that are non-compliant.
Electrical regulations and building codes will change over time and construction parameters that were acceptable when a property was being constructed may not be acceptable now. This is something that will be your concern when you take ownership, particularly to the rental properties which have to meet special conditions on safety.
Some of the common compliance problems are lack of outdoor outlets, absence of GFCI in wet rooms such as bathrooms and kitchen, improper grounding, and poor smoke alarm wiring. An advantage of hiring regulatory compliance lawyers would help you learn about the duties of a landlord and to be aware of all of the existing requirements before purchasing the property.
The issue with this is that sellers are not necessarily supposed to bring everything up to code before they sell it, but you may be expected to do so before renting. This can be a shock to your budget when you are not ready.
Dependence on overloaded Circuits and Extension Cord.
During the inspection of the property, walk around and observe the use of power outlets. Do you have extension cords all around? Plugging in several power strips used on one outlet? These tend to be indicators that there are not enough outlets in convenient places in the property and occupants have to create workarounds.
Although this may be insignificant, it shows that the past residents had a problem with the electrical set up. The same will be experienced with your tenants. Worse, overloaded circuits are fire hazards, and you do not want to be left with a property that has been systematically overloaded over the years.
The Bottom Line
Electrical disturbances in your investment property are not only technical, but also financial and legal liabilities that can have a severe effect on your returns. The bright side is that these traps are avoidable as long as you do your due diligence before it is your turn to suffer.
Admittedly, the money spent initially on employing professionals to conduct comprehensive inspections is expensive. However, it is money very well invested when weighed up against the cost of rewiring a property upon purchase, or getting into an electrical fire, or incurring liability concerns with tenants.