Buying a Rental House With Aluminum Wiring — A MUST Read Guide!
You have found your next rental property, and you’ve determined it’s in a great location with premium rents. You agree to terms on the price, and are now under contract! Then, the home inspection reveals that the electrical wiring is aluminum. You think to yourself. “OK, so what?! Why is the home inspector flagging this as problematic?” Before you brush it off as no big deal, be sure to read this guide on electrical wiring in homes and why you may want to think twice before purchasing a home, especially a rental home, with aluminum wiring.
The standard for electrical wiring in homes today is copper. However, older homes that were built in the 1960’s and 1970’s may have aluminum vs. copper wiring. During this time, there was a copper shortage which caused copper prices to soar. In order to save costs, there was a lot of electrical work that was done utilizing aluminum wiring. While aluminum wiring is actually a better conductor of electricity vs. copper, that also means that it brings a higher fire risk. In fact, homes with aluminum wiring vs. copper wiring are 55x more likely to have outlets that pose a fire risk such as hot receptacles, electrical sparks, and charred materials. In addition to the fire risk, aluminum wiring is also more prone to loosening, breaking, and oxidizing. Electrical fires cause around 32,000 house fires every year, making it the third leading cause of residential fires in the United States. I don’t know about you, but the safety concerns from the presence of aluminum wiring is not something I want to take on for a rental property.
What is it about aluminum wiring that increases the fire risk vs copper wire?
Put your lab coat on so we can go to science class. The reason aluminum wiring poses a higher fire risk than copper wire is because it expands and contracts far more than copper does in load temperature changes. This is ultimately what causes the issues discussed above — loosening, corroding and oxidizing. This deterioration creates resistance build up in the wiring, thus increasing the temperature of the wire. As the wire heats up, it expands more. As it expands, it deteriorates. In coding we would call this an infinite loop, but another way to explain it is that it creates a vicious cycle.
What if you’re not sure what type of wiring you have?
You’re reading this article from the couch in your 1968 built home and have no idea what type of wires you have. Below are some common warning signs:
- If you touch the surface of the plate covers on your outlets and switches and they are warm to the touch.
- Flickering lights
- The smell of burning plastic
- Your circuit breaker frequently trips
- You experience a mild shock or tingle after touching an appliance
- An outlet frequently sparks when you plug in or unplug appliances.
Should I Buy a Rental Home with Aluminum Wiring?
While there is no right or wrong answer here, I do not recommend it due to the fire risk. The most important thing to do as a buyer is to educate yourself on the implications and the potential for added costs in the future. As a real estate agent, I would recommend during the inspection phase of your contract, to reach out to a licensed electrician to give you a quote for replacing the wiring in the entire house. I would then ask your real estate agent to negotiate the sellers to either have the wiring replaced before closing, or give you a credit at closing to replace once you move in. The cost to replace the wiring can vary greatly, and can range anywhere from $1,500 to $10,000+ depending on the size of the home and local safety codes. It is important to factor in the costs for permitting and inspections.
Another option is to replace connection points where the aluminum wiring is exposed. Similarly to above, reach out to a qualified electrician to get a quote on how much it would cost based on your house. To replace connection points, the licensed electrician will make the connections safe by adding a short section of copper wiring to the end of each aluminum wire. This is often referred to as pig tailing.
Another major consideration is whether or not you will be able to insure the home if it has aluminum wiring. Many homeowners insurance companies will not insure the property, especially when it is a landlord policy so be sure to reach out to your insurance company ASAP to find out. Sometimes, they will do it if the aluminum wiring is corrected in the method described above but often times, insurance companies will not provide coverage for homes with aluminum wiring. It is likely that the sellers of the home know this, and realize that potential buyers will be concerned. Your real estate agent should bring this concern to the listing real estate agent and use it as a negotiation factor.
What About “Knob and Tube” Wiring?
Knob and tube wiring is another older, outdated method for electrical wiring that was common between 1880 and the 1940’s. It consists of copper wires, porcelain knobs and tubes, and cloth or rubber insulation. Knob and tube wiring carries a lower supply of electricity and does not contain a ground wire (the third prong on electrical outlets.) It is overloaded easily, especially when multiple appliances are running at once. If you determine that the rental home you are considering purchasing has knob and tube wiring, it’s important to find a good electrician who can analyze the situation and determine whether or not there are fire hazard conditions, and how great they are. The good news is that there are certain situations when knob and tube wiring is allowed to stay in the home. For this to be the case, the following conditions must be met:
- It is protected by a 15-amp fuse or circuit breaker
- No additional outlets have been added to the original installation (to avoid a circuit overload)
- The visible conductors appear to be in good condition
However, the bad news is that, while aluminum wiring can be remediated so that the home buyer can avoid completely replacing by pig tailing, the only option for knob and tube wiring is a full replacement. Your licensed electrician will install a new electrical breaker panel, upgrade old outlets and switches, then connect everything to give your house its new power system. Again, use this as a negotiation point! There will be many home buyers that will be scared away by electrical wiring that is not copper, so use this to your advantage to negotiate a better price so that you can repair or replace.
The Final Verdict
Safety is extremely important when I am considering purchasing a new home for a rental property. You do not want to put your tenants at risk. If you cannot afford to update the wiring, my recommendation would be to pass (unless you can negotiate the sellers repairing) and look for better opportunities. I know one of the hardest parts of being a real estate investor is waiting because it can be so exciting when you finally are ready to close a deal! But, try to remember that patience is a virtue and that building a rental property portfolio is a business, so it is important to frame it that way — try to overcome emotional decisions and think as rationally and logically as possible! I hope this article has helped you understand electrical wiring, and the fire risk of aluminum or knob and tube wiring.