Real Estate Mentor Program Student Learns About Exploding Electrical Panels.

A real estate mentor program student recently decided to cherry pick a wholesale property he got under contract and do a complete rehab instead of flipping it. The property had what were mostly serious cosmetic issues that he got for a price at 1/5 of the After Repaired Value (ARV). So instead of flipping it for a $30k – $40k wholesale profit, he decided to go for a $80k to $100k profit.

Let me reiterate why he got the property so inexpensively – he solved the problem of the seller which was an “unwanted house.” His sincere effort to help the seller not only resulted in a great price but his credibility with the seller stood up against another investor’s offer of an additional $20,000 that was made to the seller.

This was not this real estate mentor program Student’s first attempt at rehabbing as he was actually very experienced but the past few years decided to stop rehabbing and wholesale only. He also made the proper decision to pull permits for the roof, electrical and air conditioning repairs he had in mind.

He encountered the usual ups and downs with the city’s Building Department getting permits simply because it wasn’t going to be his residence. He could have lied and said he was going to live in it but the city will check later and if you aren’t homesteading the property and living in it, they usually fine you. You’ll find that lying gets you through the day but it can have long-lasting consequences.

When he started getting electrical contractors to bid on updating the existing electrical panel, he got a huge surprise. For the sake of legal issues, I have to say that the information I’m now going to relate is hearsay from a couple of licensed electricians and contractors – actually everyone that he had bid the job.

It turns out that the electrical panel in the home had been manufactured in the early to mid-1970’s and had been recalled a number of times. The reason was that the breakers in the panel, if properly grounded, were defective and could and often did start fires and the breaker stayed closed when they should have tripped. I am not sure if deaths resulted but it not far-fetched to believe that it happened. I say “properly grounded” above and I mean that – if the panel was improperly grounded, these seemed to be little problems – again hearsay.

A recall of electrical panels is not like an auto recall where it’s easy to find the current owners. The recall notice goes to “known” contractors and electricians who purchased the panels. In most cases the recalls resulted in “no action” as these people had moved on and may not have even remembered where they were installed.

So if you are rehabbing or simply buying a home to live in, I would check online regarding the manufacture’s name, date of manufacture and load service (50 amp, 100 amp, etc.) and panel ID number if available that is in the property. If you see aluminum incoming power lines (leads) to the panel, these have to be replaced by an electrician! This is where the real estate mentor program student lost money not seeing the aluminum conduit and did not plan for this in his property repair cost evaluation. Any decent home inspector should spot the aluminum feed right away. This will become a negative aspect of any property you are going to wholesale or wholetail.

An ironic twist of fate is that these defective breakers are still trading on E-bay because they are no longer manufactured because they are DEFECTIVE! Rehabbers and even electricians buy these breakers to fix seemingly broken circuit breakers rather than replace the panel. However, the company has left behind a legacy of fires, destroyed homes and pending disasters that will last for many years to come.

What’s the cost to replace aluminum feeder lines and an electrical panel? It depends but it’s a whole lot less than the cost of a life or a burned out property. Don’t think you have sold the property and it doesn’t matter – anyone can be sued and if this situation (bad breakers) happens to you you’ll also have to live with your conscious. For some people living with one’s conscience isn’t a problem but think before you take shortcuts to say a few bucks or save a little time because it could result in a death.

The panel in question that our real estate mentor program student encountered and had replaced is an FP&E Federal Pacific Electric Company. I have no idea how many other defective electrical panels or breakers have been recalled – due your own due diligence.

In addition even if you replace the breaker panel inside the property the aluminum feeds must be changed to copper feeds for current codes.

This is where my real estate mentor program student got caught paying an additional $1200 for the copper feeds and outside new disconnect panel to go with them for the newer codes. In my mentor students eyes he lost $1200 by not catching this error but in reality he has made his property safe for the future home owners. Now the electric upgrade will be sold as benefit to the new potential buyers looking in that area for their new home and may bring even a larger profit for the deal.

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founders.