The external component is only connected to the Arduino by the 5v wire.
The arduino is connected to the laptop USB (ground from laptop)
The "switch" is powered through the house voltage dropped down to 5v DC (ground from house)
Turns out I needed to ground them with the same ground. I tapped of the house ground and connected it to the GRD pin near the 5v out pin.
Looks like everything is working now..
Time to add more code and see if it I can keep it working
Cheers guys