As we were doing the walk-through inspection of our most recent flip, we noted that there was a regular 200 amp breaker panel on one side of the house with a few open spaces in it. This was great because we needed those spaces to add a new air conditioning system.
When we got to the other side of the house, however, we found a small fuse panel. It had no fuses in it so we just assumed it was an old panel left from when the electrical system was updated to the current breaker box we had just noted.
Something strange was going on, however. The side of the house with the fuse panel wasn’t getting power. I called my electrician, Bogue Electrical, to see what was going on. As it turns out, power from the updated breaker box fed the fuse panel, which in turn, supplied the master bedroom plus the water heater and dryer. In other words, the fuse panel was actually a subpanel of the main breaker box.
This was something we didn’t expect. Updating the fuse subpanel meant tearing out sheet rock, putting in a new breaker-style subpanel, running new wires and then putting new sheet rock back up. All that would add $3,000 to our budget. Oops.
Before I gave Bogue Electrical the OK, I wanted to confirm that updating the subpanel was necessary for our buyers to obtain a loan.
The first person I called was a mortgage broker. He told me that from a lender’s perspective, he didn’t see anything that would prohibit a bank from lending on a house with a fuse panel. I breathed a sigh of relief.
But then he said the financing would really depend on what the appraiser said about the situation.
I re-inhaled my sigh of relief and called one of the best appraisers I know. His name is Phillip Henson.
Besides being dead accurate on his appraisals, Phillip is also a free thinker. He’ll read the rules set out by the Federal Housing Administration (FHA) and interpret them so they can be applied correctly to the right scenario.
Phillip informed us that FHA guidelines state that as long as a fuse panel is adequate and functional, FHA will insure a loan without having to update the panel. His thoughts were that if the fuse box has been there for 30 years running all the appliances, it was obviously adequate and functional. We both chuckled.
But then Phillip threw a wrench into the situation – he said the main problem would be getting the house insured. He said some insurance companies view a fuse panel as a fire hazard and will not insure a house that has one.
“Fire hazard” is a phrase I never want my buyers to hear. I also don’t want them to have trouble getting insurance. With all that in mind, I gave Bogue Electrical the green light to start.
An unexpected amount like $3,000 is a pretty big expense to incur just starting a rehab, and trust me, it doesn’t feel good. But we do something on every project that helped us out here. We add in some extra money to our budget for the unexpected things like this that happen on every rehab. We call that amount “oops money.”
The amount of oops money varies based off the size of the rehab. For instance, if it’s a small rehab, we add $1,000 to the budget for any potential oops. We had allotted only $2,000 for this project. After this electrical oops, we are $1000 in the red. But that’s a lot better than the full $3,000.
If you’re not factoring oops money into your rehab projects already, start! The last thing you want to do is run out of money on a rehab because somebody said, “Oops.”
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.