Hey everybody, how's it going?
This is Seth Williams from retipster.com.
And today I'm sitting down to talk with DJ McClure.
He's the director of sales for National Flood Experts.
And the reason I wanted to talk to DJ is
because I heard a different podcast he was on a little while ago,
where he was talking about this idea of when a property
is in a designated flood zone.
It's actually possible to get that removed from a flood zone, which can be a pretty big deal
from a cost standpoint, with the cost of insurance and the ability to do certain things
with that property.
And whether you own or looking at buying a property that currently has a structure on it.
Or even if it's vacant and maybe someday you're going to build something on it.
It's a significant thing
if you have the ability to change that situation.
So I didn't even know you could do that.
So when I heard about that, I was like, man, I got to talk to him and figure out
what does that take?
How do you go about making this all work?
So DJ welcome.
Is there anything else I should say about you as I'm introducing you?
No, that was a pretty great introduction.
I think we're ready to bring you on board to work for us.
Sweet anytime.
So let me know.
So for those who may have not ever owned property in a flood zone,
or maybe they don't understand why this is a problem,
what are some of the big disadvantages right off the top of your head
of having property that's in any kind of a flood zone?
Sure. That's a great question.
So for most property owners that go into the lending and what happens is that your bank
is obviously running a flood zone determination of that particular property.
And when it's flagged as being in a special flood hazard area, part of the closing documents
is that flood insurance is a requirement.
And then depending on what type of loan that you have, will determine the limits that they require.
In some cases, it's full building replacement and business income replacement.
So the price can escalate commercially very, very quickly.
Yeah.
And so then when we go in, we do a free audit of the property, do an engineering analysis
and determine that that property in fact was included in the flood map and can be changed
into a low risk zone.
Those mandates from the lender are then removed
and you're free to ensure the property how you like.
So basically, just greatly reduces the cost potentially of having to pay flood insurance
and income replacement insurance.
Is that what you said?
Getting the flood zone corrected and getting into an X zone, those surplus requirements
are gone and then your primary insurance is going to be at the lowest price point possible.
I often use a car analogy.
If you've got a real high price sports car versus maybe a Prius,
obviously a Priu is going to have a lower risk rating,
which is the same thing for flood zone property.
You get it into a lower risk category and the multiplier is much less.
Now if a property is just a vacant lot, like nothing's on it.
There's not a whole lot going on there.
I'm trying to think of how big of a problem this is.
I know in my mind, I always just think, well, if I'm flipping a piece of land and the future
person that buys it for me say, if they want to build a house on it, that's if they're
doing their homework, that's something they're going to care about, because they're going
to have to pay extra flood insurance for as long as they own that property.
Are there other consequences that a land investor would've to keep in mind if their land
is at a flood zone, like just limiting their uses or just costs of ownership
or anything else that matters that I'm missing?
That's a great question.
And depending on the location that you're in, there's local permitting laws that designate
the elevations at which you have to build the structure.
Houston, for example, has a two foot flood boarding rule.
So the structure entry point has to be two feet over the flood zone.
And so depending what type of area that is and what type of structure you're building
that obviously can add cost to the construction plans.
Whereas if we're able to then go in, improve with the engineering data, that that area
can then be carved out of the flood map, those building restrictions are then lifted.
And so it frees you to develop the property how you would like.
So I think it's important to explain kind of how this phenomenon happens.
As the flood maps are created community by community, each individual area goes in,
they do their research, they put together their modeling, but at a certain point,
regardless of what level of detail they have,
there's averages that come into the equation.
And so obviously, there's not funding to survey on a building-by-building level.
So within those averages, that's where we find the variations in the property,
especially certain types of property, like apartments that tend to be somewhat built up
higher than a parking lot, for example.
And those are the kind of things that we're going into and determine.
For a land project you can determine what the lot elevation is sitting at currently,
and if it's cost effective, potentially filter can be brought in
retention ponds can be built in as well because you may have the type of firming laws that require
if you bring in so much dirt that you also have to remove so much dirt.
So sometimes it's cost effective and sometimes it's not.
Yeah.
So I know I use a service called DataTree, which has a flood map layer
you can put over the whole map of the US.
There's also like the FEMA website where you can download flood maps and that kind of thing.
However, I've found that, like for example, on the FEMA website, I've downloaded
flood maps from there before, but they were dated 1982, it's when they were done.
And since that time, I know they've actually changed the layout of the land primarily
because of a flood zone to get rid of it in a certain neighborhood.
And I'm just curious, how accurate are those flood map sources?
Can you really trust them or I don’t know, do you have any thoughts on that?
Well, the flood maps are only updated generally about every 15 years.
The amount of time it takes to gather that data is quite lengthy.
But then we do find areas where the maps for whatever reason are still from the 1980s.
And so land development and real estate development moves at a much faster pace.
And so it is very difficult to trust the accuracy of maps that dated just with technological
advances in itself.
We're going to have a more accurate idea of what flood risk that area really is at currently.
There's different flood zone levels, right?
Like some of them are worse than others.
Is it like a 100-year flood line, a 500-year floodplain?
Or how does that work?
Like which ones are you most in trouble if you're in that flood zone?
Yeah.
So you have 500 year floodplains who technically are part of the X zone.
So those are not generally zones that would be required for anything special by a lender.
Once you get inside the 100-year floodplain, this is what falls into the special
flood hazard area.
Whereas a lender will require flood insurance for that property.
Within flood zone categories, you have V like Victor flood zones.
Then you have A flood zone categories.
Your V or your coastal flood zones
where you're expecting water to rush up onto the coast, kind of your coastal Florida areas.
That would be the kind of the thing that would come to mind.
Your A flood zones vary within certain levels of detail, like an AE flood zone is the most common
That's where you see within some of your local areas where there's a specified
elevation associated to it. Say it's an AE 10 foot flood zone.
If I'm looking on one of these flood maps
and I see, oh, it looks like my property is just inside the flood zone.
What can I think through, or how do I know from that information or whether or not
I have a case for getting my property reclassified or removed from that flood zone?
Like, is there anything I need to think about, or do I just, no matter what,
just pick up the phone and call DJ and see what he can do for me.
Like how do you think through that?
Yeah.
From the average property owner, they may not have much idea,
if there may be a case.
And so, yeah, I would say if anyone's ever curious,
they're welcome to reach out to us.
We do a free review of the property and can give them, regardless of what information
they have, if they have a current elevation survey, a certificate of the property,
we can obviously come to a determination at that point.
But it's good to note does the property have a history of flooding
even though sometimes that's not always
example that it won't still qualify.
Harvey was a 2000 year storm for Houston
so many areas flooded that we've still been able to help since then.
And so they're obviously keeping insurance just at a lower price point,
understanding the history of the property is probably the first thing I would say.
And then otherwise, if you're curious, reach out to us and see if we can help.
How much does this cost?
Like say somebody contacts you and they're like, yep, let's do it.
And you do your audit and you figure out, yes, we can do this.
We can make this go away.
Like, how do you guys get paid?
How much does that cost?
At what point does it actually incur an expense to your customer?
Sure. So if we do a flood zone review for a client
and determine that we can property out of the flood zone,
our fees just based on the current flood premium of the structure,
depending on how many structures it may be that qualify
that will then determine the end price.
We have a few other solutions that come into play where it may not be the flood zone that
we change, but we may find some engineering data that we can leverage, in a positive manner.
And usually either these scenarios are going to result in some form of a refund for the client.
So our fee is then generally offset by the refund that they're receiving.
So the insurance company will actually give money back?
Yeah.
So the NFIP insurance, they have rules in place that are specific
to a letter of map amendment.
So meaning when a map has been designated from a high risk to low risk,
they're able to then rewrite the policy or cancel the policy entirely,
and then be refunded back
for the current policy term for the entire year.
Does it ever happen where you look at a situation
and you determine we can change this classification,
but you have to change your property in some way, like you have to build up an earth berm
around it or something, so that water can't get in.
Is that ever the solution, or could that be the solution
or is that not really how you go about doing this?
It's one of the things that we look for.
We have like a five step process that we go down through the review
and that's usually a last and final option.
So if we've gone through all the data,
maybe we've sent one of our own engineers out to the site to gather new data
come through all the insurance, to see if there's any opportunity there for cost savings.
And then if there's still nothing that we've arrived at, then we start looking at
physical improvements to the building.
Sometimes there's washout areas around the buildings, just over time, the land has kind
of lowered itself a few inches a year, perhaps.
So there are situations where you can go in and repair that.
And then re-serve the property with those new elevations.
And then there's more extreme cases where building a burm around the property
or some type of permanent barrier could come into play.
Again with real estate, always, is it a cost effective solution built into the performance strategy
you have for the length of time you plan to own it.
It makes sense.
Is it going to add value to the property is always the final question.
What percentage of these deals do you actually end up succeeding and making a change
and making an impact on that?
Sure.
So, we're qualifying cases right now in over 60% of the properties that we're reviewing
nationwide.
When we determine that a property qualifies,
we're at a 99% success rate in getting these approved by FEMA
Sounds like it's worth looking into then, huh?
What kind of impact is there for this kind of flood zone change on insurance?
Like, I guess it either reduces the cost of that or it wipes it out completely
if you totally get it out of flood zone? Is that the desired result?
It depends.
It's depending on where your property is located and the history of that area.
Our clients in the Gulf coast region, they typically still keep a flood insurance policy,
but rather than paying 2,000 - 3,000 a building,
it could be as low in certain scenarios as say 720 a building.
There could be quite a Delta in the pricing structure, not to mention if they had any
surplus requirements on top.
Some of the more extreme cases that we've had
we've saved clients in some cases, $60,000 - $70,000 a year.
Wow. That's huge, man.
That's amazing.
What does an assurance company need to see in order to adjust that premium?
And what does it take to give them what they need?
Like they just need here, here's a stamped paper proving that it's not a problem anymore,
or what does that look like?
Great question.
FEMA issues a federal document specific to the legal description of that property
and the structures that are included in that letter of map amendment document
is a federal case number that the banks and the insurance carriers can reference.
But in giving that document to the insurance carrier, they're then able to adjust the rating,
issue an endorsement back to the clients in the form of a refund, and then adjust that
policy declaration page going forward.
And what states do you work in currently?
We work in all states nationwide.
You actually send somebody out to the property to physically inspect it
or is this all like just Google Earth map kind of stuff,
or how involved is this audit process?
In some cases can be very involved.
We have engineers in house licensed in states all over the country.
So we're able to then send our engineers out to those states where we're licensed
and we can actually then certify the data ourself.
This is obviously an advantageous scenario and what we prefer, because then we are able
to then analyze the data in real time, get back to the client with what the solutions
at hand may be.
Do you ever deal with wetland issues or is that just a completely different ballgame?
We haven't been brought in at this time for any wetland projects, but I'm sure with
land development, it's only a matter of time.
Yeah. Because it's kind of similar in that there's like water involved and that kind of thing,
but it's pretty different as well.
So is there any downside to reaching out to you?
Like if somebody has any doubt in their mind,
it doesn't sound like it really costs anything upfront, right?
I mean, are you able to pretty quickly look at the property and assess whether or not
it's worth you even doing the audits?
It seems like it could be pretty, I guess, costly
or inefficient to you if everybody was calling you wanting this audit. And how does that work?
No, I mean, we're happy to take a look at any property, regardless of the history of
the history of flooding, if high flooding strings premiums,
because there's always a solution.
And if there is one, we're going to find it. We have a no risk guarantee.
And so we go through the process, we say, here's the solution.
If it doesn't work out the way that we have initially proposed,
then we don't issue an invoice to the client.
So if we were to go to FEMA for example, and petition a property to be removed from
the flood zone and it worked to be denied, the client doesn't have any cost from us
at the end of the day.
Cool.
Well, DJ, that's all the questions I had,
but I appreciate you talking to me and giving us more information.
Again, I didn't know this was even a thing you could do.
So, if anybody out there listening to this,
if you ever come across a flood zone issue
and you think maybe there's a chance of resolving that or improving it in some way
I'll include his website beneath this video. And who knows?
Maybe he can help out.
You're free to give my email out there if you would like as well.
Sure. Okay. I'll include that too.
Well, thanks again, DJ.
I appreciate it, man.
And talk to you later.
Yes, sir. Thank you.
You bet.