Knob and tube is OLD, not incorrect. If he says it's wrong because of knob and tube (not just outdated), he is lying. If it's aluminum, forget being grandfathered in--update it instantly! But if it's copper, make a decision.
It sounds ludicrous that you would have knob and tube in an unpermitted addition. Knob and tube was defunct by 1940. In most places, you don't see it after 1930 or so. Permitting for additions wasn't even common then. People who had knob and tube in a main house did insulated wiring in additions done more recently. Some of that really early insulated wiring is kinda trash--the insulation gets brittle and disintegrates, which is (to put it mildly) not the best, but that's not what he's saying. 99% chance you either misunderstood or he is lying.
The bathrooms have mold because they're damp. Newbies and suckers believe the mold remediation hype. Don't be one of them.
If it's mold on the finished surface, clean it off with bleach and install ventilation. If it's in the rental, connect the vent to the light to force tenants to use ventilation. (Sounds mean, but at my house, I took 10 years to train my HUSBAND to use the vent, and even then, he only did it when I installed timers, and it takes about as long to train each kid, too.)
If it is mold inside the wall, then you have water intrusion and may need to at least partially gut the place.
First cause of this is people who don't close the shower curtain and let water get out all over the floor, which then seeps between the shower wall and the finish wall or the tub and the floor. If this is the case, then use my trick of renting your places with a shower liner and putting velcro on the shower liner and tub wall and requesting that tenants not undo the velcro except for when they wash the liner. (Chances are high they're not going to wash the liner.) You can also add splash guard clips to the shower wall to accept the shower liner. The extra tall splash guards help with this. The lower ones don't.
Also, if you have a big problem with this, you can replace the bottom few of drywall with hardiboard and tile it to make a tile wainscot. (Use large format tiles and epoxy grout to lessen water intrusion, too. Epoxy grout has a steep learning curve. Don't let someone learn on your project, just FYI, and always use a glazed tile with it, even if it's a matte glaze. Never use epoxy grout plus something like travertine.) You can even Redguard the sucker to make it more waterproof. Replace the caulk around the tub, too. You rent to people raised by wolves. They might be really nice wolves, but chances are, they revert to wolf status as soon as you walk out.
The second cause is a failed shower enclosure or leaking plumbing. This can require partial or full gutting to replace what's wrong. I would advise, in strongest terms, never to install shower pan except a preformed shower pan in a rental. No tile pans. No terrazzo pans. They are expensive and fail and leak. If you need something custom, get cultured marble in solid white--you can get any size. If you choose to tile the shower/tub walls, do this only over Kerdi or appropriate tile backer, never green board. (Green board is fine under solid surface walls, from fiberglass to acrylic to whatever else, and is usually preferred, but don't do it under tile.) Tile is not waterproof. I repeat: TILE, WHEN INSTALLED PROPERLY, IS NOT WATERPROOF. Too many people think it is and then think that their install "failed" when the tile leaks. Tile never was and never will be waterproof. All installations that are waterproof have a different layer that provides the actual waterproofing. So you need your waterproof layer. I also strongly recommend to never, ever put in a custom bench or a custom niche. Prebuilt only.
It's also possible that the only failure is the drain. Unlikely, but possible. The plumber's putty needs to be replaced, and you're on your way then. Make sure to use something that won't stain your tub/sink--different materials have different restrictions.
You already have this property, so I guess you should go forward, but you clearly don't know enough about home construction to do rehabs at all right now and certainly not older ones. This is a serious problem, and unless you learn really, really fast, you'll end up being taken to the cleaners as you implement contractors' and inspectors' wishlists without the discernment to realize what is needed and what isn't. I'm really not trying to beat up on you but rather warn you that your construction knowledge is a serious failure that can break your plans. Know the codes. Know what goes wrong. Know how to fix it.
