August 1, 2021

JF2525: Getting Higher Returns with Flood Zone Properties with DJ McClure #SkillsetSunday

Today, we’re talking with National Flood Experts’ Director, DJ McClure, about the benefits of investing in flood zone properties and how to use them as a value-add tactic. DJ discusses the flood zone creation process and how he works with FEMA to change flood zones, and how you can use this to your advantage to acquire properties other investors are probably passing on. 

DJ McClure Real Estate Background:

  • Director of National Flood Experts — a firm focusing on reviewing flood zones to uncover cost savings to properties
  • National Flood Experts has helped add over $100M in property value
  • Based in Tampa, FL
  • Say hi to him at:

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the Best Real Estate Investing Advice Ever Show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of the fluffy stuff. First off, I hope you’re having the best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skill Set Sunday. And here’s a skill that I doubt that you have, and that’s okay, because we have an expert who has it and he’s going to talk to us about it.

It is uncovering a hidden value-add strategy for especially multifamily investors, as it relates to flood insurance. So with us today, we’ve got DJ McClure to talk to us. First off, DJ, how are you doing?

DJ McClure: Doing very well, happy to be here.

Joe Fairless: Well, I’m glad to hear that, and a little bit about DJ—he is the Director of National Flood Experts, which is a firm focusing on reviewing flood zones to uncover cost savings for properties. National Flood Experts has helped add over $100 million in property value, and they’re based in Tampa, Florida.

So first DJ, let’s learn more about you and the company, and then we can get into some specifics. So would you mind telling the Best Ever listeners a little bit more about yourself and your company?

DJ McClure: Yeah, absolutely. I grew up in Kentucky and knew nothing about flood zones, but I was at the tenants industry, and that’s what brought me to Florida. And then in transitioning those skills into business development, I was introduced to Brad Hubbard, who’s our owner and our original engineer. And he had worked some also in the insurance industry and just discovered there was a huge overlap that was being underserved, where a lot of properties were being required by their lenders for flood insurance, and there were opportunities there to make some corrections and create some huge cost savings.

So now we’re seven years into the company, and the journey has been wonderful, working with people all over the country. And that’s what we’re here to do.

Joe Fairless: So what do y’all do exactly?

DJ McClure: A typical situation is someone buys a property and the lender requires the flood insurance and they just take that at face value and take it that that’s just how it’s going to be for the life of their loan. So we go in and do an engineering review, look at the buildings on a very granular level, dig into the flood zone and then look into their flood insurance and start looking for opportunities where potentially we could have those buildings removed from the flood zone, get them into a zone x, which removes the lender requirements. And that can be substantial in itself.

And when that doesn’t qualify, we start going down an entire avenue of different other possibilities that couldn’t cover some cost savings and get refunds generated from the insurance carrier as a result.

Joe Fairless: Like what?

DJ McClure: So flood insurance is a very data-driven insurance. So based on certain characteristics of the building, certain data points of the flood zone, sometimes a 10th of a foot can be the difference between a policy being, say, 2000 and 5000. So we go ahead and we’re checking all these details for accuracy. And then also within flood insurance itself, the data will sometimes uncover certain scenarios that we can then take back to the carrier and say, “Hey, wait, actually, this policy should be rated like this” and the policy would then yield a lesser cost, and that one we’ll issue a refund as a result.

So blending various knowledge bases is what has made our firm very successful. We understand flood insurance at the deepest level, but then also understanding how the engineering is involved, and that’s where a lot of solutions are found.

Joe Fairless: Okay. Well, I get the second part of it, which is looking at the characteristics of the building and looking at the buildings, and I want to talk more about that. But on the first part of it, where the lender requires flood insurance, isn’t that as simple as just looking up the flood zone and what it’s marked, and then is my building in that? If so, yes. If not, no. What are you doing exactly that would try to support a case where the property, if I’m looking on the website and it’s in a flood zone, it’s in a flood zone – so how could you change that?

DJ McClure: Yeah, so let’s talk about how the flood zones are created. So when each community is doing their flood study, which is really only updated about every 15-20 years, they’re creating these maps based on historic data and it’s created at a very macro level, and it groups in a lot of properties on a mass scale. And obviously, the land is not flat. So we’re going in at a more micro level and we’re identifying buildings where they can essentially be excluded from the flood map. Instead of being rated as a high-risk building, we can get FEMA to approve and change them to a low-risk building.

So then, from a lender perspective, anything in the high-risk flood zone, they’re required by law and compliance to have flood insurance covered on their loan. So once we get FEMA to issue the federal letter of map amendment, the lender requirements are then dropped. And that gives the investor a lot of opportunities, because they can either choose to cancel their flood insurance or they can keep a policy at a lesser price.

Break: [05:57] to [07:59]

Joe Fairless: My novice question is, any time you try to get the government to move quickly in anything, it’s not going to happen. How long does it take to get the federal letter of map amendment sent by FEMA if you have a good case?

DJ McClure: Well, you’d be surprised actually how quickly it can be done. We do thousands of these projects, so we actually have a direct access, and we have an expedited processing that we receive as a result. It can be as fast as 5-7 days, in some cases. Otherwise, we’re still only looking at maybe 4-6 weeks on some of the more complex cases as well.

Joe Fairless: Can you share a big win that you’ve had for a client?

DJ McClure: Yeah. A great example – we were working with a company that was based out of Richmond, Virginia. So they had a pretty substantial flood exposure in terms of their costs. They were paying about $600,000 a year for their flood insurance on six properties. So we went in, we did an evaluation… We actually, in that case, had to send our team—our engineers are licensed all over the country—on-site, collect some additional information, and then it all resulted in saving the client about $350,000 a year.

Joe Fairless: Wow.

DJ McClure: Just on one single property. They had about 25 buildings in the flood zone. We were able to get FEMA to change that flood zone, and they’ve maintained flood insurance, just because that’s where their risk strategy was in place. But that policy went from a little over $200,000 down to closer to $30,000. So that was $170,000 in NOI that they added immediately.

Joe Fairless: Wow. That’s incredible. And how much do you make off of that?

DJ McClure: So for a project, when we’re doing a flood zone removal, the fee is just one year’s flood insurance. So our average project size is maybe $8,000 to $10,000 across the country. They can be smaller or larger, but one year’s flood insurance for each building that we’re able to get FEMA to approve.

Joe Fairless: Okay. For one year flood insurance for each building you get FEMA to approve, and so it’s no longer in the floodplain.

DJ McClure: Exactly.

Joe Fairless: Okay. That’s the holy grail, I imagine, for the owner to get it removed from the flood zone. What’s the next level down for the owner if you can’t get it removed?

DJ McClure: The best-case scenario is that we at least find a way to reduce the cost. There are situations where we’ve been able to help clients get refunds for not only their current policy, but some years retroactively as well. And then the best thing is that any solution that we find is ongoing. So this client that we changed the flood zone, that 170, they’re going to see that savings every year, same thing for if we even just find $1,000 savings on a building; that’s going to carry over at renewal.

And then the best thing is that when the flood zone is changed, it automatically carries over to the next buyer, or as many people are doing right now, going into the refinance process, the new lender is also going to recognize those buildings as an X zone, and will not have any additional flood requirements for the new loan.

Joe Fairless: Nice. Huge.

DJ McClure: You can imagine for a cash-out refi—

Joe Fairless: Oh, yeah.

DJ McClure: It’s a huge value that it can add to that process.

Joe Fairless: When you initially have a conversation with a potential client, what are some questions you ask him or her to identify if this is going to be a good opportunity for them?

DJ McClure: For us, the qualifier is pretty simple. If the property is required for flood insurance, then it’s worth our team taking a look. We don’t charge anything to do a property review. So there’s nothing negative that can come from our team taking a look, and we’ll be very transparent with what the possibilities could be. So we ask them, do they have elevation certificates for their buildings? Can we review a survey? Can we review the current flood insurance declaration pages that are in place? And that’s really all the information we need to get started.

Joe Fairless: What percentage of properties do you do that exercise with? And you don’t help out, other than just educate them that you can’t help them?

DJ McClure: That’s a great question. We keep the stats very accurately, and over the seven years of the company, we’re still holding strong just around 60% of the properties that we review, we identify a cost-saving solution.

Joe Fairless: And when you identify the cost-saving solution, what would be the reason why the client would not proceed with that cost-saving solution?

DJ McClure: There’s a few scenarios where the premiums of their policy may already be very low. So it’s possible they may only be paying, say, $850 a building in an AE zone if they’re building very elevated, for example. The X zone pricing would go down to maybe $750. So maybe they’re only seeing a few hundred dollars a building in savings, and maybe that’s not substantial enough for them to want to move forward. But very seldom does someone pass up the opportunity when their buildings can have the flood zone changed because of the greater impact that it has, obviously, when they go to their disposition cycle and sell the property, or with the refi perhaps as well.

Joe Fairless: Absolutely. What else should we talk about that we haven’t talked about already as it relates to this?

DJ McClure: I think there’s a misunderstanding in general about flood zone properties for investors, because a lot of people just avoid them in general.

Joe Fairless: Yep.

DJ McClure: I tell people all the time, there’s a lot of hidden value in the flood zones. I think that 60% stat really shocks a lot of people that it’s that common across the country, but it’s worth — if you’re underwriting a deal and you just really like it and it just happens to be in a flood zone, send us an email, let us give it a really quick look and see what we might know about the area; we might be able to surprise you with some of the details. And we’ve had situations where that’s totally changed the underwriting and we’ve been able to qualify, get it approved by FEMA, all before the closing—

Joe Fairless: Wow.

DJ McClure: —and then they bought it for one price, they go into day one with some additional NOI they didn’t expect.

Joe Fairless: That’s a game-changer. It really is. You primarily work with multifamily. What about a $60,000 single-family house? Do you all do that?

DJ McClure: Absolutely. We work with all forms of real estate. Single-family, though on a lesser percentage now, can be just as captivating to the owner, because if you’re buying a house and all of a sudden you find out that you need a couple of thousand dollars worth of flood insurance, that can be detrimental to your financial situation.

So with single-family, it’s the same approach; we give them the same level of detail that we would any other property, and then the solutions can be just as impactful. On X zone flood zone policies, usually only around maybe $400 to $500. So you’re saving someone a couple of thousand dollars on their home – that’s also substantial.

Joe Fairless: Anything else before we wrap up that you’d like to mention? I’m really digging this conversation, and I want to make sure that we’ve addressed all the areas that you think we should address that’d be beneficial for the listeners. Anything else that we should talk about?

DJ McClure: Yeah, I mean, I think there’s areas of the country that have had obviously disasters… You know, the Houston’s, the New Orleans, the Northeast, where they’ve had hurricanes, they’ve had historic flooding. I think people will be shocked that we’ve had success in a lot of those areas as well. A lot of these communities are doing a lot of mitigation to improve and reduce the flood risk, and as a result, some of their flood maps have improved. And that’s allowed us to really go in a couple layers deeper and still be able to get the flood zone changed for some of those individual properties. And those kind of markets are definitely seeing property value increase as a result.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you?

DJ McClure: Yeah, they’re welcome to go to our website, They can also send an email to, and myself or someone in my team, we’ll be happy to follow up. And like I’ve mentioned, any review is no cost and there’s no obligation. So we’ll be happy to provide as much insight as we can and to see what the possibilities may be.

And then additionally, if we move forward with any project, with any of our clients, all the success is 100% guaranteed, or else we don’t charge the client ultimately anything.

Break: [16:54] to [19:57]

Joe Fairless: DJ, thank you for educating me and educating, I’m sure, a lot of the Best Ever listeners about this value-add… It’s not only a value-added tactic, but it’s also a way to get deals that others are passing on. And perhaps they’re passing on it, but they shouldn’t be. So it’s awesome to hear a strategy that could help make us money when we have a deal and then also can help us acquire deals, and opening up a different avenue of opportunity to look at. So thank you for being on the show, thanks for sharing this advice; I hope you have a best ever weekend and we’ll talk to you again soon.

DJ McClure: Thank you.

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