The Untapped Potential of Flood Zone Consultation for Real Estate With DJ McClure

In this episode of The Same Day Podcast, host Mat Zalk is joined by DJ McClure, Vice President of Sales and Business Development at National Flood Experts (NFE), to discuss the untapped potential of flood zone consultation. They explore how early flood risk assessment can enhance negotiation strategies, the impact of flood zone adjustments on property value, and practical tips for both single-family homeowners and commercial investors to optimize their flood insurance costs.

The Untapped Potential of Flood Zone Consultation for Real Estate

DJ McClure is the Vice President of Sales and Business Development at National Flood Experts (NFE), a company specializing in innovative flood insurance solutions and cost-saving strategies for property owners. Recognized on the Inc. 5000 list and by the Tampa Bay Business Journal‘s Fast 50 list, NFE focuses on helping clients reduce flood insurance premiums and increase property value through detailed flood zone analysis and policy optimization. DJ leverages his expertise to guide clients nationwide in navigating flood insurance complexities and enhancing their real estate investments.

Here’s a glimpse of what you’ll learn:

• [2:46] How NFE’s strategic growth through partnerships has led to significant cost savings for clients
• [3:09] DJ McClure’s journey from tennis pro to real estate and flood insurance consulting expert
• [5:01] Why flood insurance is often overlooked and how it can impact investments
• [6:49] The varying coverage limits and requirements across different loan programs
• [8:36] The federal government’s role and FEMA’s requirements for properties in flood zones
• [14:06] How flood insurance coverage works and the implications for property owners
• [16:19] How private carriers and FEMA operate together in the flood insurance market
• [18:26] The process for checking if a property falls into a flood zone using online resources
• [23:10] How development and infrastructure impact flood zoning and property assessment
• [29:04] Using flood insurance evaluation as a negotiation tactic in real estate transactions

In this episode…

Understanding the complexities of flood insurance can be a daunting task for property buyers and investors. How can one effectively manage flood risk while maximizing property value? This critical question reveals a significant yet often overlooked aspect of real estate transactions.

According to DJ McClure, a seasoned expert in flood insurance and real estate consulting, understanding flood zones is essential for both buyers and sellers. He highlights that early flood risk assessment can prevent unexpected costs and facilitate better negotiation outcomes. DJ also underscores the importance of engaging specialized services like those offered by the National Flood Experts (NFE) to optimize insurance policies and potentially remove properties from flood zones, leading to significant long-term savings and increased property value.

Resources mentioned in this episode:

• Mat Zalk on LinkedIn
• Yonatan Schmidt on LinkedIn
• Walter Bowser on LinkedIn
• Keyrenter Property Management
• Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas
• Keyrenter Property Management email address: [email protected]
• Chris Lile State Farm 
• DJ McClure on LinkedIn
• National Flood Experts (NFE): Website | Email

Special Mentions:

• Federal Emergency Management Agency (FEMA)
• National Flood Insurance Program (NFIP)
• FEMA Flood Map Service Center (MSC)

Related Episodes:

• “DIY Plumbing: What Owners Should and Shouldn’t Attempt Alone” with Aaron Wynn on The Same Day Podcast
• “How To Compete in the Banking Industry: Relationship-Based and Customer-Centric Service” with Jared Goldfarb on The Same Day Podcast
• “Scaling a Business: The Power of Networking” with Brandon Neth on The Same Day Podcast

Quotable Moments:

• “Real estate was one of those items that really piqued my interest, and so when I arrived in Tampa in early 2017, shortly after I met this company, I was really intrigued.”
• “So with the National Flood Insurance Program, there’s a very small criteria that you’d be denied.”
• “If you’re paying under $2,000 for that particular single family, there may not be a whole lot of reduction that you can see.”
• “Anything can flood in reality; you have infrastructural failures that can cause water to back up or arise.”
• “We’ve become this intermediary between what’s going on at the local level, at the building-specific level of detail, and what is the federal flood map.”

Action Steps:

1. Proactively research the flood zone status of any property you’re considering for purchase or investment.• Understanding flood zoning helps you foresee potential insurance obligations, ensuring informed decision-making.
2. Engage with an insurance broker early to explore flood policy options and costs.• Early engagement allows for financial planning and may uncover more competitive insurance rates.
3. Consult with experts like National Flood Experts to review potential cost-saving solutions.• Expert consultation can often reveal unrecognized opportunities to save on premiums and improve real estate values.
4. If purchasing land, conduct due diligence to understand floodplain implications and permitting guidelines.• Proper due diligence prevents unexpected development restrictions and financial setbacks related to flood zoning.
5. For sellers, consider preemptively addressing flood zone issues before listing to defend sale prices.• Resolving flood zone issues enhances property appeal and may prevent post-listing negotiations that lower the selling price.

Sponsor for this episode…

Chris Lile at State Farm Insurance:

This episode is brought to you by Chris Lile at State Farm Insurance.

Chris Lile at State Farm helps you protect your most precious assets and investments, including home and auto.

To learn more about how you can save double digits on all your insurance needs, visit dialliale.com or call Chris’ office at 918-878-7771.

Keyrenter Property Management:

This episode is also brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.

The team helps clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.

To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

Episode Transcript

Intro 0:05

Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.

Mat Zalk 0:20

Mat Zalk here, host of The Same Day Podcast where I connect with top business experts and real estate leaders. Past guests on our show include Aaron Wynn owner operator of Wynn Plumbing in Oklahoma City, Jared Goldfarb, the Senior Vice President of commercial lending at BancFirst and Brandon Neth, the co founder of evergreen property is doing a ton of cool renovation projects in Tulsa for long term, lease and hope. Today’s episode is brought to you by Chris Lile State Farm. Chris Lile State Farm office helps you protect your most precious precious assets and investments whether it’s your home and auto investment rental properties or other valuables. Give Chris Lile a quick call for a painless way to potentially save double digits on all of your insurance needs visit diallile that’s diallile.com or call 918-878-7771 Today’s episode is also brought to you by Keyrenter Property Management. At Keyrenter Property Management. We do full service property management and that means we help our clients buy renovate and operate real estate assets. From start to finish. We help our clients build wealth while taking the headache out of property management. Listen DJ. As you know since you’re an LP investor in a bunch of deals, it’s tough to line up contractors and get make readies done in a reasonable amount of time after a tenant leaves the property. Contractors are busy the work seems to drag on forever and all that leads to loss of rental income. At key runner we line up our dedicated vendors so that turns can happen super quickly and we get more money back into the pockets of investors just like you. And that’s why no matter what rental you have single family homes, condos, townhomes apartments, we have the management solutions, you need to go to keyrenterpmc.com or email us at [email protected]. Our guest today is DJ McClure. He’s the VP of sales and biz dev at National Flood Experts that’s NFE and they drive strategic growth through partnership and tailored cost saving solutions. And if he’s been our NFE has seen consecutive appearances on the Inc 5000 list and has been recognized by the Tampa Bay Business Journal’s fast 50 list with a commitment to innovative flood insurance solutions. NFE has saved clients over 15 million in premiums and added nearly 300 million in property value. And if his team of experienced professionals dedicate themselves to providing nationwide clients with education, guidance and optimal solutions, DJ McClure Welcome to the show. How are you doing?

DJ McClure 2:46

I’m good. I’m excited to have our conversation today.

Mat Zalk 2:48

This is what some might call flood insurance, an esoteric topic. It’s not well known by most people, and most people aren’t even considering it. Right? I mean, when they purchase a property, they’re not even putting it on the radar for diligence. But from your perspective, I’d love to understand like, what’s your history and how you found a passion for consulting on flood insurance solutions?

DJ McClure 3:09

Yeah, I’ve always had an interest in real estate. I’m not an engineer, though I have worked for an engineering company now for six years. My background is in the tennis industry as a tennis pro for a long time. So I worked with, you know, aspiring juniors for a long time. And, you know, having lots of different clients over the years, you know, you just hear about lots of different industries and just lots of things that really piqued my interest. And real estate was one of those items. And so when I arrived in Tampa, in early 2017, you know, shortly after I met this company, and was really, really intrigued and really fascinated by this really niche type consulting expertise that they built. You know, this combination of engineering, expertise and fun insurance. Yeah, those two worlds live entirely separately, you know, in all ways possible within real estate. And our President brought those two worlds together and really overlapped those two expertises and you know, real estate being the third prong, they’re really thinking like how do we help investors add NOI? How do we help them make their properties more valuable using flood insurance cost savings as the vehicle to do that? So it’s been a really fun process all these years, you know, now working with investors nationwide.

Mat Zalk 4:33

So, so many multifamily investors, commercial investors, and even to some extent, single family investors understand the value add opportunities, they understand, literally value add, like going in and rent rehabbing a project they go in, they understand cost segregation. Why is flood insurance, mitigation, cost mitigation solutions, kind of something that’s less to note about.

DJ McClure 5:01

I think it’s a really great question to start with, you know, so flood insurance is somewhat commoditized, you know, across real estate, you go to a lot of property. During the lending process, you know, the banks will run what’s called a flood zone determination. And they do this on every single real estate transaction, doesn’t matter what type of property it is.

Mat Zalk 5:20

So we don’t even need to know about this, that that is happening on the back end. We don’t even hear right. Okay, cool.

DJ McClure 5:24

Yeah, they have to keep this document on file for compliance. And basically, it’s to show if a property is in a 100 year flood zone or not, it’s kind of black and white in that regard. If it’s in a 100 year flood zone, legally, they have to require flood insurance. And then the type of loan dictates the coverage limits that that property has to carry. And so it varies across like, you know, more as a standard loan or a bridge loan versus like an agency type, you know, fixed that loan. So there’s different requirements that come with different loan programs. And so they’re so dramatic. And so black and white, like you have to have this proof of flood insurance, or you cannot close the loan. Or if you don’t they force a place at a typically a really high cost. And no one really questions it. And you’re forced to buy this insurance, and people just typically renew it, you know, years and years and years down the road. And we’ve just really disrupted that process, and said, Hey, actually, there’s some solutions here that could help. And it all starts as early in the process as possible.

Mat Zalk 6:33

And when you say that coverage limits change, do you mean that one? Lender one one loan program will require an actual cash value replacement? Or one is your, the replacement cost? How does that actually change?

DJ McClure 6:49

Exactly, yeah, most, most standard loan programs are just gonna want the maximum coverage that flood policy through FEMA will issue so for single family or like a two to four unit type building 250,000 is the max coverage that a flood policy through FEMA will issue. If it’s five or more units, or it’s the clubhouse type building, you know, they’ll go to 500,000. So a lot of loan programs, they just want you to have that NFIP Max, as they call it, you know, the National Flood Insurance Program. You get into some of these other more sophisticated loans like their Fannie Mae and Freddie Mac, they tend to require full building replacement, they want 12 months of business income for flood insurance, or for flood specifically included. So that can make the cost go up dramatically, because that gap that you’re having to cover, let’s say it’s a million dollar quadplex. Yeah, right. So only 250,000 would be the base, you know, FEMA policy, you have to go to the private market to now get that other 750,000 or seven, yes. And that can be quite expensive. And it scales. You know, we’ve had projects recently where a multifamily project had to go to the market for 30 million and flood coverage. And their costs were hundreds of 1000s.

Mat Zalk 8:14

So let’s talk about for a second the basics of coverage. FEMA, the normal insurance market for a single family or for multifamily property on a total loss of fire, for example, is a private industry. Why does FEMA step in? Why does the federal government step in to provide insurance coverage for the flood market?

DJ McClure 8:36

Yeah, so the law was passed back in the 70s, that required flood insurance be in place for properties inside of a 100 year flood zone. And so it was, you know, around the same time that a National Flood Insurance Program was then created to help counteract that. So with typical insurance, right, it’s all privatized, it’s essentially investments of money, hedging risk against real estate as the product, right. So the companies can choose to offer you a policy or not, right, you can be non renewed by your buyer or your property carrier, just because they don’t want to write policies in Texas anymore. So with the National Flood Insurance Program, there’s a very small criteria that you’d be denied. Like, they will basically give you a flood policy for any building. And so you’ve always got that coverage option. It may not always be the best price option, but you can always get a policy through the NFIP. And so that’s the reason why that federal insurance program exists.

Mat Zalk 9:38

Does that mean that as carriers as private carriers, State Farm farmers and hubs, whatever job whatever the big commercial carriers are, as they leave Florida, that the federal government steps in to actually take on the risk of flooding from the coast in Florida?

DJ McClure 9:59

Well, those carriers that you’re talking about, they’re primarily on the property side. Right? So they may have some line items to include some flood coverage and certain master property programs, but they’re typically not the ones that you’re seeing people get their flood policies through. Right. So there’s a whole industry of private flood carriers that will choose to write policies and some parts of the country versus another. You know, so the National Flood Insurance Program, you know, that’s where you could probably see 80% of people getting their flood policy from.

Mat Zalk 10:32

Got it. So basically, the federal government mandated it and then said, if we’re going to mandate it, we’ve got to have a backstop program that will always underwrite these deals. When right when private coverage isn’t available, otherwise, people are out there, they’re doing things outside of the scope of the law. And then we’re, we’ve created a scenario where people are forced into, you know, illegal activity, so we have to provide the backstop.

DJ McClure 10:56

That’s yeah, and part of that, too, is that, you know, the flood maps exist for construction purposes, primarily these days. And so depending on what the flow elevation is, it’ll dictate that construction, the first floor elevation be so many feet above that flood elevation number. And so then these communities are also given discounts based on their compliance with certain flood guidelines, you know, flood mitigation, flood prevention. And so there’s, there’s some give and take, you know, certain parts of the country get really high discounts. But then, most recently, in Fort Myers, they were found to be out of compliance. Some of the reconstruction that was done as a result of some damage these last few years, they were found to be out of compliance. And so they actually lost their community rating discounts, which was a 25% discount on their flood policies. Right. So yeah, there’s some give and take, you play ball with the things that they want for helping to make the community as you know, flood safe as possible. Yeah, there’s discounts in place. But what you’ve also seen over the last, probably five to 10 years is, there’s been a lot more companies getting into the flood industry, on the private insurance side, a lot more options for single families. And then you see, the commercial market has really started to grow. Over the last several years, more people are getting in seeing that there’s a profitable market there. And then investing against the risk, you know, in certain parts of the country and certain real estate products.

Mat Zalk 12:36

And essentially, I mean, the way insurance works is they identify the actuary, they identify the loss ratios or statistics that say, I can make a margin above it. They like that market for a little bit. Because it’s profitable, they experienced a couple of losses or significant losses, and then they decide the private market generally decides maybe I don’t want to be in that that the numbers I was running actuarially or maybe not as good as I thought, and then they drop out and they come back and kind of drop out is that is that gonna mirror the cyclical nature of, of the private insurance world?

DJ McClure 13:07

Yeah, it’s an ebb and flow, right, they’re gonna go heavy in some markets, completely say no to other markets. And they’re Yeah, they’re always updating those models that they’re using, or as you know, flood insurance through FEMA, it has a standard guideline, for the most part that allows there to be some standardization to at least how they’re rating the policies. You’ve seen some changes in FEMA guidelines over the last two years, they totally revamped their rating model. And so it’s created a little bit more, you know, a little bit more in the gray now with how these policy premiums are calculated. And so it’s made it to where it can be really expensive in certain markets if you’re having to buy a flood policy. That didn’t exist before. So it’s an interesting time to be talking about flood insurance in general.

Mat Zalk 14:06

But let’s talk a little bit about the, like, the nuts and bolts of it, the property floods, you go six feet into the first floor on this, let’s talk about this four unit. Residential property that you’re that you mentioned earlier, anecdotally, you’ve got to go in, you’ve got to rip out all the sheetrock. That’s the work that the insurance covers. Is that right or wrong?

DJ McClure 14:31

Yeah. So they have guidelines, right for certain types of damages, that will then pay out, you know, certain types of coverage limits, you know, up to the maximum for that building. And so, that’s not something that we specialize in and really get involved too closely. But the big point to understand there is that there is a max that they’re going to pay out for that building. And so that’s where you know, when you talk to your insurance broker, just to just Closer, I’m not a licensed insurance broker. You know, so as they’re working to decide how much insurance they should place on that particular risk, that quad Plex unit that might be worth over a million dollars, if something were to really happen. So you may look and talk to your broker and say, Yeah, I can only get 250,000 through FEMA, do I want to put something supplemental in place? Should the damage go beyond that? 250 numbers? And that’s really where you just have to hedge the risk of your investment.

Mat Zalk 15:32

Yeah. So in this general process of getting insurance, if you’re going to write it through the NFIP, you call it if it happens that way. Is it going to be a normal commercial carrier or a State Farm or residential carrier? I guess they’re called I don’t even know, that writes a policy underwritten by FEMA, or do you go directly to FEMA to get this policy written?

DJ McClure 15:55

Yeah, there’s several different carriers that will write through Themis program, you know, so, assurance, selective, right, flood the Hartford learning, there’s several, there are some brokers that go through what’s called NFIP direct. In theory, you should be getting the same dollar value from any of these different carriers.

Mat Zalk 16:19

Interesting. So what National Flood Experts NFE. What NFE does is review predominantly on commercial real estate and multifamily is my understanding, correct me if I’m wrong, but you guys go and do an assessment, determine what somebody’s paying for flood insurance, if they are paying for flood insurance at the time, and then do a bunch of backend work to petition FEMA or the carrier to reevaluate the status of the property? Is that right? It could be that we argued that it’s actually not in the 100 year floodplain needed to update the maps, we need a bunch of stuff. And then, as a result, the cost of the operations of the property reduces, is that generally the theme?

DJ McClure 16:59

Exactly, yeah, we’ve built out this really robust review and engineering audit that we do on every property. And so it’s that process that really has this intention and end goal of creating a cost savings one way or another. And like you described, it’s really those two buckets, it could be on the flood zone side, it could be on the flood policy side. And so with FEMA, having this standard guideline, you know, if we find that there’s something in the rating that we can optimize, you know, through the data that we’ve that we have found, we know the carrier and say, Hey, actually, we’d like you to rewrite this policy, here’s all the data to prove that. And then they will lower, you know, the full risk premium of that policy. And then equally, there’s a checks and balances that exists for the flood zones. You know, all your local counties are managing their flood maps, as they update every 10 to 15 years, in most parts of the country. There’s properties that, you know, when you do an engineering analysis, they may be outside of that criteria. And so you got a female with the engineering to show that. And instead of being included in a 100 year flood zone, now, FEMA will issue a map amendment specific to those buildings. And now when that lender does a flood zone determination, it will show as an X Zone, for example, not required for flood insurance any longer.

Mat Zalk 18:26

So, how does FEMA even based their 100 year flood map? Presumably it’s based on when the last flood was? Is that generally accurate? Or they have more obviously, they have more sophisticated modeling of it. But is it as simple as saying this property was last flooded in 1920? Therefore, in 2020, you haven’t updated your model since 1999? And therefore, we need to bring up the moving date or is it something? Is it something different in a simple estate?

DJ McClure 18:56

Yeah, yeah, it’s kind of an antiquated naming of, you know, what they call it. But what they’re doing in most cases, they’re looking at all the infrastructural improvements that have been done, you know, construction moves faster than the flood maps, you know, a new multifamily unit or a new neighborhood could go up in a couple of years. And that also changes the flow of water. So in a nutshell, they’re looking at the flow of water, and all these different areas drainage, where water should go, you know, if there is a surplus, all these different variables, and they’re really trying to build out a flood model for where they think water will go, and these more extreme situations, and then they are doing a digital, you know, overlay of what that looks like and then determining that within this area. We think that the flood elevation will reach nine feet. And so again, those models and that work takes several years. To put it together. There are several years of appeals at the local and federal level. You know, so that’s why they really don’t update too often. But that’s why they also have these appeal processes that exist, you know, either for going in and doing a full map provision yourself, you know, where you go in and say, actually, you know, we built this property, we changed all these things, we added some dirt, we added some ponding, you know, all these different things that change the flow of water. And you can have a flood revision done, right, this is more like a nine to 12 month process. Then on the faster side, you can do it at the building level. And you can say, actually, my particular set of buildings, here’s the engineering that showed that outside of the current 100 year flood we’re not, that’s a map Amendment type of scenario. It doesn’t redraw the flood lines, but just removes your particular set of buildings.

Mat Zalk 20:50

Got it? DJ, some folks that may be listening. might wonder how they actually find out whether a property is in the flood zone and something that they’re investigating? Or maybe a property that they don’t have any debt on? What’s the easiest way to find whether a property you’re, you’re whether subject property would be in a flood zone?

DJ McClure 21:11

Yeah, I mean, you can go and pull out a famous flood layer, you know, if you just Google MSC flood map, it’ll take you to, you know, FEMA site, and then there’s a link on there, where you can click to, to their viewer, it’s a little bit better website. And so when you put in an address, what you’re looking for is to understand the differentiation of what you’re looking at here. So this blue area on the left, this, which kinda looks like water, right? The blue area is the 100 year flood map. Now this brown area that you see, you don’t always see that in every scenario, but the brown area would be what they call a 500 year flood zone that doesn’t really have any importance. In terms of lenders, you do have some parts of the country that will require certain construction to be higher than the 500 year elevation. But for most cases, what you’re really looking for at this stage is, am I going to be required for flood insurance on this property, I’m looking to buy anything that this blue area is touching, even in the least right, so if we kind of just go down the map, you can see that some of these buildings are even only 25% touched by the map, but they’re going to be required by the lender, in every single case. Now, over here, on this eastern side, you can see this raw land scenario, if you don’t see any color, it’s not in the flood zone. You know, by by this maps purposes, it’s important to understand too, that anything can flood in reality, you have infrastructural failures, that can cause water to backup or arise, you know, so the flood maps, usually an indicator more from the lender side, you always wanted to have a conversation with your insurance broker that understand the true risk of that area.

Mat Zalk 23:00

Interesting. So you go to the website, type in an address. And it’s as simple as that, finding out whether you’re in the flood zone. It really is easy to do now.

DJ McClure 23:10

Yeah, I encourage everyone to do this. As soon as you’re thinking about buying something, you know, make this part of your initial checklists. So that way it doesn’t get overlooked, doesn’t come back to bite you later in the buying process.

Mat Zalk 23:20

When you’re talking, I keep thinking about Katy Prairie and outside of Houston. Houston is obviously prone to flooding. And the Katy Prairie used to absorb a ton of water. And now it’s all subdivisions. I mean, when I was a kid, we used to go out to the Katy Prairie to hunt. And now it’s all that Bass Pro Shop went in there. And now it’s all homes, it’s all essentially, you know, track housing, I don’t know what you call it, like, you know, commercial build homes and production builders. And that would dramatically affect water absorption as the prairie becomes concrete, and asphalt and it has to run somewhere. So the reverse must also change. Instead of getting buildings out of a flood zone? They must now say this formula, we absorbed all this water? Formerly, and I don’t know, quantify, I don’t know how to quantify water, hundreds of millions of gallons of water that rained every year on this, you know, 60 section area of land is now being diverted somewhere. So all these homes are now more prone to flooding. How does that work that, you know, the upgrade actually ends up being a great example.

DJ McClure 24:25

Yeah, that’s a really good example as to how development, you know, infrastructure changes the flow of an area. So I mean, Florida, for example, right? We’ve got Disney. Disney was built on a huge swamp. Yeah, all of that Orlando area was, you know, low line water areas at some point. And so this is what the flood maps help to dictate. Right. So we do a lot of projects in Katy. We’re super familiar with that area specifically, and all of Houston really. And so that’s where some of the permitting guidelines will dictate how the construction is done. So that development isn’t built, and then all of a sudden is flooding all the neighboring properties. So everything is built with the question of where will water go. It’s funny working around engineers all these years, like you don’t look at buildings and roads the same way anymore. You notice how the road is always sloped and things like that. But yeah, those areas, you know, they’re going to do some mitigation efforts while they’re building those, because otherwise they wouldn’t be approved projects. And that’s why you can’t just go into any piece of land and just add four feet of dirt and decide to build your structure on top of that, there has to be some checks and balances. That’s what your local floodplain management in each community is really spearheading. But with newer construction, a lot of times they are mitigating some of these things. And so the flood map doesn’t automatically recognize that development. FEMA, at the federal level, they don’t know that you built this new apartment complex, and you did all these grading adjustments. And this, you know, built these ponds and all this different, you know, drainage infrastructure, and that, you know, that property may now be outside of the criteria of the flood zone, or that particular flood map. Right. So that’s why going in, you know, someone like us at the building level, and then kind of being that intermediary between what’s going on the local level, at that building specific level of detail. You know, what is the federal flood map?

Mat Zalk 26:32

Let’s talk for a second about when a client would engage in FE, like, when does it make sense? And maybe we start on a single family level and move up to multifamily and then commercial? When at what point of insurance cost? Does it make sense to really engage in a fee to do a study and potentially Petitioner lobby FEMA to make changes or the insurance carrier to actually upgrade? Update the policy?

DJ McClure 26:58

Yeah, I mean, in an ideal scenario, you’d be looking at this, you know, before you even have a contract in place, like you want to understand, am I buying a building or set of buildings that are in a 100 year flood zone? It’s not something that’s usually on the initial checklist, right? Someone’s looking at the T 12. What’s the insurance per door? What type of value add, you know, type projects can I do to get the biggest return, increase my rents etc, right? So flood insurance is not usually in that initial thought process when I think it really should be. Yeah, and this is really the same for any type of real estate, it doesn’t matter if it’s single family, or if it’s the, you know, 100 unit, multifamily property, right, you can identify it earlier in the process, you can also plan better because, especially if it’s a single family that that seller may not have any debt on the property. And this is sometimes even the case for commercial properties. And so you’re not even going to see that a flood policy has been in existence. And so a lot of times that gets misunderstood to be located, the seller said there’s no flood insurance, so it must not be in a flood zone. Yeah, which is a big, not the case.

Mat Zalk 28:07

Potentially a big liability that you’re taking on once you have to start paying that premium.

DJ McClure 28:12

So you know, you either build your offering price or you’re underwriting around certain cost variables that are cost estimations, and then you get later into the buying process. And you get that notice from the lender, usually a few weeks before closing, so then you’re scrambling. And it’s hard at that point for your insurance broker to even find the best options. But also, this can be done at any point in the life cycle. Right? It’s not like you get a different result. If it’s two years into owning something, obviously, the year over year impact that you’re realizing maybe a little bit less. But all these solutions can be executed at any point.

Mat Zalk 28:54

But so you might say I paid two years of $10,000 worth of insurance. That’s water under the bridge. Now I’ve got a review for my next two years. Correct?

DJ McClure 29:04

Right. Yeah, because any solution that’s executed automatically has a year over year impact is now like petitioning your taxes that you have to do every year, if we go in and change the flood zone, or if we go in and rewrite the policy. The way that again, FEMA has programs, specifically the way it’s structured, is if the cost is brought down, there’s only so much of an increase that they can put in place every year, they have a cap. And then you can really forecast out what those next several years of ownership look like, at least from an expense side on the flood insurance.

Mat Zalk 29:37

So when I’m a single family homeowner, and I discover that I’m in a flood zone, and I’m paying flood insurance, what’s the cost of insurance annually? It makes sense for me to come into NFE and say, I gotta get this changed.

DJ McClure 29:51

I gotta figure this out. Yeah, I mean, if you’re paying under, you know, really, if you’re paying like under 2000 for that particular single family There may not be a whole lot of reduction that you can see, there used to be some more standard pricing that existed years ago, that would be even as low as like 500, a building for single family. And those pricings just don’t exist anymore, you know. So we’re seeing a lot on the lower end, somewhere between maybe 1000 to 2000. So if you’re in that range, there probably isn’t a whole lot that can be done from a cost saving standpoint. Now, obviously, if it can be taken out of the flood zone, you can eliminate that policy altogether, if that’s what you would ultimately like to do. Right?

Mat Zalk 30:38

So if you’re somewhere in our savings forever, basically. So good, good ROI there.

DJ McClure 30:43

Yeah. So anything in that ballpark or greater is definitely worth looking at. And honestly, that’d be kind of similar for commercials as well. Wow, that’d be similar for commercials. Well, if you’re in that 2000, a building, a ballpark. There may be something that can be done, but it’s not going to be super dramatic. The only difference between a single family case and that of a multifamily is obviously the multiplier. If I can go in and reduce, even by 500. A building times 20 buildings, that’s obviously a still pretty sizable impact to the NOI 500 savings on a single family. It’s not doing as much to the valuation necessarily for that property.

Mat Zalk 31:23

Yeah. Let’s talk about flood insurance as a negotiation technique. I mean, a lot of people use inspections on a single family or multifamily property they would use. They would use inspections as a negotiation technique, if you find that you bet the property that you’re buying, despite not having flood insurance, because in this scenario, as you mentioned earlier, the seller doesn’t have any debt on it and wasn’t required to have flood insurance. That is that it needs flood insurance, when you purchase it. Do you see people making if they bring this up early enough in their transaction lifecycle that they would use this as a technique for actually lowering the cost and saying, Hey, I can’t offer 1.7 As I was before, and now I have to offer 1.5. Does that happen?

DJ McClure 32:04

Absolutely. This is where you’re tapping into our investor brain. And we’d like to say we have our engineering brain, our flood insurance brain, our investor brain. Yeah. And, you know, we work with both sellers and buyers. Because, you know, to take a step back, if you’re a seller, and you don’t have any debts, I will bring up and say, Look, well, your buyer is going to have a fiduciary requirement, they are going to negotiate this against you. So if we’re able to mitigate that, before somebody lists the property for sale, then we’re helping them defend their sale price. Right. And then if on the buyer side, if we’re able to say like this is gonna be, you know, required costs for you, definitely, they’re bringing that up to the seller, and they’re trying to negotiate down the price, because in reality, the valuation of that property is less than what the seller is trying to list. So, in a sense, if we have a solution, also to help mitigate that cost. Now, it kind of becomes a two way benefit. They ‘ve seen cases where they’re able to negotiate down the buying price. And then we also have a solution that we’re executing behind the scenes. This is where you can get some in some cases fairly substantial hidden NOI, you know that you’re able to realize day one.

Mat Zalk 33:24

Interestingly, we’ve had a bunch of land acquisition people on the podcast. They come in, they buy land for cheap, they flip. It seems like a good business if you’re deep into that world. My question is where people ever buy land without understanding that there’s floodplain implications, try to sell it, flip it and and be met with these constraints and not having not not having known that they’re somehow a parcel that they buy, which could be a section that could be, you know, certainly 100 acres or whatever not understand that the value that they’re paying for is not what the actual value is because of the floodplain mitigation, whether there’s some some connection there do you do you deal with land pure land speculators?

DJ McClure 34:06

We did? Yeah, we see that quite often. Typically, if a piece of land is much cheaper than everything around it, there’s usually a reason. And in our experience, a lot of times it’s the flood zone. You’ve got types of flood zones that are very difficult to build in. And so they’ve never been developed. And it’s like a prime piece of real estate. You really want to dig deeper, because we’ve had some instances where somebody bought something and then came to us after and the floods were really, really restricted. You know, what they’re able to develop and build in that area. But then, inversely, like we’ve had cases where, you know, there’s pieces of the land that as it stands today, we could go in and carve out the metes and bounds and actually get that piece taken out of the flood zone. Now you’re building with As zone permitting guidelines versus the flood map, we’ve also coached you know scenarios where we see that there’s opportunity within certain areas, helping them to set the grading plans in a way that we’d then be able to also carve out additional areas out of the flood zone. So we see this with land flippers, really they go in, do some modifications like this, get it entitled for a certain type of development, and then sell it off, you know, in that way. So yeah, that can be profitable for sure.

Mat Zalk 35:32

I don’t recall anybody mentioning floodplain issues when I interviewed him on the show, but that’s definitely something to consider. Let’s talk. What do you do for continued personal and business development? You listen to podcasts, you read books about floodplain management, do you do other stuff related to real estate?

DJ McClure 35:54

Yeah, I mean, I like real estate. I’m a LP investor on the side of projects myself, so I go to a lot of real estate conferences, both for work and for myself. It’s kind of, I guess, a side benefit, you know, networking within that industry for clients. listen to podcasts, from time to time listen to audiobooks when I’m on the golf course.

Mat Zalk 36:15

So you’ve traded tennis for golf? Yeah, you’re both true men of leisure.

DJ McClure 36:21

Well, I lived on the tennis court for a long time. And so now, you know, I feel like my ceilings are a lot higher with golf. It takes a lot more work to play the level of tennis. Mentally I find it acceptable.

Mat Zalk 36:37

Yeah. How are you able to get out? On the golf course?

DJ McClure 36:43

Yeah. I mean, in Florida, you can play your round. So I’m usually hitting golf balls, hopefully a few times a week.

Mat Zalk 36:48

Yeah, it’s a great business development tool. Frankly, if you have larger clients, a lot of my friends, development and I find it, I find that I have anxiety being like Zen for four hours and just hitting a couple of shots. But my friends that do business development are big on big solar projects. And other things say that there’s nothing better than having a decision maker on you know, alone time for four hours, you really get a lot done. So maybe I’m in the wrong industry for a golf career on the side.

DJ McClure 37:16

Well, there’s always retirement.

Mat Zalk 37:17

There’s always retirement and they’d be in Florida or Arizona as we were talking about earlier. DJ McClure is the VP of sales and business development at National Flood Experts NFE who drive strategic growth through partnerships and tailored cost saving solutions. NFE has seen consecutive appearances on the Inc 5000 list and has been recognized by the Tampa Bay Business Journal’s fast 50 list with a commitment to innovative flood insurance solutions nfsa clients over $15 million in premiums and added nearly $300 million in property values. That’s the kind of savings and then cap rate valuation that we talked about earlier. And if his team of experienced professionals dedicate themselves to providing nationwide clients with education guidance and optimal solutions. DJ I knew nothing about flood insurance. And it’s been a pleasure chatting with you about it and hope some of our listeners will have learned quite a bit about flood insurance, what it is and how to mitigate some of those costs. We appreciate you being on the show.

DJ McClure 38:15

Absolutely. Thank you very much.

Mat Zalk 38:16

Thank you. If somebody wants to reach out I forgot about this. If somebody wants to reach out and find it, they can clearly see your background. It shows National Flood Experts. They can just google National Flood Experts. Is there any way for them to get in touch with you directly if they have questions?

DJ McClure 38:28

You’re welcome to send an email to [email protected] and they can find me on LinkedIn, DJ McClure. As always, to clarify, they’re happy to help any scenario.

Mat Zalk 38:43

Awesome. Love it. Thank you very much for being on. We appreciate you.

DJ McClure 38:47

Thank you. Thank you.

Outro 38:52

Thanks for listening to The Same Day Podcast. Tune in to a new show each week, and be sure to subscribe to get future episodes.