September 15, 2020

JF2205: Condos To Notes With Andy Mirza

Andy Mirza is the COO for Coastline Capital Fund Management LLC and has been investing in real estate for 17 years. He initially started buying condos and eventually, he started to invest more on the non-performing notes side of the real estate business. He shares what notes are and why he started to invest in notes later in his career. 

Andy Mirza Real Estate Background:

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“If you want to do anything in real estate or investing directly, you need to do it full time” – Andy Mirza


Theo Hicks: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, I’m speaking with Andy Mirza. Andy, how you doing today?

Andy Mirza: I’m doing great. Thanks for having me on here.

Theo Hicks: Absolutely. Thanks for joining us. Looking forward to our conversation. Before we get into that, let’s go over Andy’s background. So he is the COO for Coastline Capital Fund Management. He has 17 years of real estate investing experience and five years with non-performing notes. His portfolio consists of $4 million in non-performing notes and $2.2 million in rental condos. He is based in Chino Hills, California, and his website is So Andy, do you mind telling us a little bit more about your background and what you’re focused on today?

Andy Mirza: Sure. I got my start in real estate as a part-time investor back in 2002. My biggest success prior to notes was buying condos at trustee sales in 2011 to 2013, and buying about 25 from closure auctions, and that experience actually helped me with the notes, understanding the buyer side of it. I still hold on to 19 of those condos as rentals with my partner on those.

I met Sean Urban, my current partner, in 2015, and we bought a few notes together, did very well on them, and then in 2016, we decided that we wanted to take things up to the next level. We wanted to be like the big boys, so we decided to create and manage funds that were focused on raising capital from investors, and then going out and buying non-performing notes that we had great access to through our context, so we could buy them at discounts and then liquidate at higher prices. So since then, in 2016, when we formed Coastline Capital Fund Management, we’ve created in managed and launched four different funds. The first one has gone full cycle. We raised the capital for that, bought the notes, liquidated all of them and the investors got their money back, their preferred return and profit split. The other two are in the process of liquidating now. And then our last fund, we are raising capital for it now and we’re raising capital until the end of July; that’s Coastline Capital Fund five. So during that time, we bought $7.8 million worth of notes. We’ve liquidated about half of them and we’re liquidating the remaining $3.9 to $4 million.

Theo Hicks: Perfect. Thanks for sharing that. So before we dive into more details, for those who don’t necessarily know exactly what a non-performing note is, do you mind explaining or defining what it is, and maybe high-level walk us through what the cycle looks like?

Andy Mirza: Okay. So when I talk to just any random person, I’ll start by saying defaulted mortgages, because most people understand what a mortgage is. We’re talking about a loan against the house as collateral. So non-performing notes, that’s used by people in the industry. So a note is a home loan. Specifically what we go for is residential, first position, non-performing notes. So it’s a note where the borrower is in default. They haven’t made their payments, and then the note goes non-performing. A lot of big banks and hedge funds have limitations on how much non-performing paper they’re allowed to have. So the banks, they’ll sell those things off. Back in 2008, 2009, this was all in the headlines where the banks had so many non-performing notes because so many borrowers ran into so much trouble paying that they had to offload those. So we’re actually still dealing with the consequences of those non-performing notes from back then.

Theo Hicks: Wow.

Andy Mirza: Yeah. Well, if you go back in time, there was just a huge flood of foreclosures. There were a lot of problems with the markets, governments and banks, and everybody did everything they could to dry up foreclosures and stop them. So by 2012, that’s when all these concerted efforts took place, but some of those loans are still out there. So some people got loan modifications, some people filed bankruptcy, but there was no more will to do all the foreclosures. So even in 2020, even before the pandemic and all that stuff, we were still finding a lot of loans that had dragged on from 2008, 2009. Actually, in our last couple of portfolios, I bought loans where the borrowers were delinquent for over ten years.

Theo Hicks: I just wanted to ask how does that work from their perspective, and the bank’s perspective? The bank was okay with them not paying or no one wanted to buy that non-performing note? How did it last that long?

Andy Mirza: So this is my opinion and based on my experience. So 2008, 2009, the banks had a flood of these non-performing notes. So they got the bailouts from the taxpayers, which allowed them to sell what they had to sell to other hedge funds, and then they were no longer on their books.

Now, the different hedge funds have all sorts of different strategies. Really, it depends on their business model, how fast and how quickly they can go through these things. So there was a big incentive for the hedge funds to try and bend over backwards to make things work with these borrowers. But then there are certain amount of notes that trickled down through the system. So it starts where you have these huge pools, then they get broken down, the hedge funds keep what they want to keep, and then they sell what they don’t want to. And then they sell to smaller and smaller investors, until they finally get to the investors that will actually do the liquidations or the final workouts. But you have to keep in mind that so many of these loans were really made to people that couldn’t afford them in the first place, and that’s the issue with those legacy loans, is that there are a lot of borrowers that had been given second, third, fourth, fifth chances, that are barely hanging on, and that actually plays into what’s going on with this pandemic. Because I think some people that were barely hanging on before, they’re gonna be pushed over the edge and won’t be able to handle it.

Theo Hicks: Totally.

Andy Mirza: Yeah. And the thing in my industry – you have these big banks and hedge funds that are very large and bureaucratic, and it’s easy for them to handle 100,000 performing loans, because they have systems that are put in place and they can do that. But when they have situations that fall outside the box, that’s where they’re really at a disadvantage. So for people like me at a much smaller level – and I consider a five to ten million a micro fund, in the whole world of a Wall Street and funds like that. But our advantage is that we can give the attention to the assets that they need; instead of managing 100,000 loans, we’re managing a lot smaller number, where we can really put hands-on and see and really try to resolve whatever issues are possible.

Theo Hicks: So one question that came to mind during that is when you’re looking at these non-performing notes, is the goal ultimately to figure out some plan, so that you don’t have to go through the full foreclosure process and then fixing the house up and selling it? Or is that what you actually want to do? Is that how you make your money? Do you make your money on the interest on the non-performing notes or do you make your money on actually foreclosing on these homes and selling them?

Andy Mirza: Okay. So I can speak about us specifically. Now, other banks, hedge funds and investors out there, everybody’s gonna have their different business model. So it’s really not a one size fits all. It’s like with normal real estate. You have all your different niches. You have your buy and hold people, you have your fix and flips, you have all your different niches. So for what we do, we’re more like fix and flip guys for notes. So we target the ones that are severely delinquent, where the most likely outcome is the foreclosure or the liquidation. We’re not trying to target the ones where they’re only a few months behind and we try and do a loan modification. That’s not our business model.

That being said, though – and this is a really important distinction between real estate and notes, because notes are really [unintelligible [00:11:26].05], we are not controlling the property. We are the note holder or the lender, in due course. The other side of the loan is a borrower, and they have certain rights by the contract of our loan.

So whenever we buy a loan, the first thing we try and do is reach out to the borrower. And if there’s a way that we can figure out some solution to either get it reperforming, I do some type of loan modification that would work for our business model, or do some other loss mitigation like a short sale or a deed in lieu of foreclosure. We will work with the borrower on something like that. The reality for us has been that when you’re looking at these loans where people haven’t paid in years, they’re in more of a mindset of trying to stay in the property for as long as they can, while paying the least amount that they have to. And then usually, they, 9 out of 10, or more like 19 out of 20 borrowers, they just either stay silent or they fight us. So like you said, we’re fix and flip guys. So we take something that’s broken, the non-performing note, we add value to it to different strategies, then we either resell the note if it becomes reperforming, or we take liquidation measures through foreclosures or those other loss mitigation things that I explained.

Theo Hicks: Sure. So after you do the liquidation, then you flip it, and then sell the property itself?

Andy Mirza: Yes, there are different ways. So if we’re foreclosing on the note, we can set an opening bid at the trustee sale or the sheriff sale where we think that a third party bidder will bid on it. Usually, we try and figure out the number that we think that “Okay, if we have to take this back as an REO, and then fix it up and then sell it, how much profit do we expect to make?” And then instead of doing that route, if we just have a certain bid and net a certain profit at the foreclosure sale, why don’t we do that?

So if we do foreclose, there’s the option of it sells to a third party and we get cashed out then. If we take it back, we’re okay with handling REOs. My partner actually runs an asset management company that liquidates REOs for two big hedge funds. So we’ve got systems in place where we can find realtors, we can have them manage rehabs and do the whole thing. So we’re investors that will take it from A to Z. Whereas there are a lot of funds out there that never want to get an REO. They’ll set the opening bid low because they want to get rid of it, and they’re not equipped to handle that part of the business, and that’s okay. Like I said before, all the note investors and funds out there have their different strategies, their different business models and their different strengths.

Theo Hicks: Yeah. So most people I’ve talked about notes do what you just mentioned, which is they don’t want to foreclose. They just want to figure it out with the borrower, or they want to sell it at the foreclosure sale, most likely. So I want to transition really quickly before we go to the best ever advice. So you don’t need to elaborate too much on this, but I’m just curious to see how the investment of non-performing notes, how you present this investment to investors. I’m assuming that a specific type of person is going to happily invest in non-performing notes. So do you mind walking us through what the typical profile is of your investor? What they do, what their experience level is with non-performing notes, what types of returns they want, things like that?

Andy Mirza: Okay. So first of all, our funds, they’re currently open to accredited investors only. So that allows us to do general solicitation. So we’re really looking for people that are interested in specifically what we do, but don’t have the time, the motivation, the connections. Really what it comes down to, like I said at the very beginning, is just the time… Because to do all the things that we’re doing on a full-time level, it’s another full-time job. I have that belief of a lot of real estate, actually. I see a lot of people get involved in real estate and they get their rentals or get their flips, but they also have a full-time job at the same time, that’s separate from real estate. And really, if you want to do anything in real estate or investing correctly, or to the maximum that you can do, you need to do it full-time. So we’re looking for accredited investors that want to be passively involved in what we’re doing, and they want to be involved in alternative investments, and they want to have something that is a safe investment, is backed by real estate, and they have an affinity for real estate and real estate-related investments.

Theo Hicks: What are the returns that you offer up? Is it the preferred return from day one? Is it just a split of the profits on the back end on the sale of the REO? How does me as an investor in this deal get paid?

Andy Mirza: That’s an interesting question. Most of the funds out there, the biggest ones PPR, AMIP, they pretty much offer just a preferred return, and that’s it. You’ll get maybe 8% or 10%. I’m not sure exactly what they’re offering. Ours is different. We wanted to structure our funds so that there was profit sharing with investors. So our latest fund offers the investor an 8% preferred return, and 60% or 50% of the profits on the upside.

It’s a three-year time commitment, and we actually expect it to be a lot less than three years, depending on our liquidations. So the combined preferred return in the profit split that we’re offering, we project that to equate to a 15% IRR, which means a 15% annual return on their money.

Theo Hicks: Perfect. I appreciate you sharing that. Okay, Andy, what is your best real estate investing advice ever?

Andy Mirza: My best advice would be to be very careful about leverage. Leverage is one of those things where it lets you grow a lot quicker, but the flip side of that is that it’s a lot riskier and you can lose a lot of money doing it that way.

This comes from experience. Before I went into business with Sean, I took on a high-value flip for doing fix and flip. I paid $860,000 for this house. The plan was to do a quick rehab on it, and then do a quick resell for $1,050,000. I borrowed almost all the money for it. I had some money for holding costs and the operations, and I did a couple of things wrong on it. One is that I didn’t do the rehab right to where it should have been for that neighborhood, and the other thing, I didn’t do anything wrong; it was just the market. The market stalled all of sudden, and that was everywhere in the local area.

So I did the rehab wrong, and then I had long holding time, a lot longer than I projected. So I ended up getting in trouble, because I had this monthly interest payment that I had to make every month. So I ended up becoming a motivated seller, which is what you don’t want to do when you’re fixing and flipping, and I ended up losing a lot of money. I got out of that loan, and I spent a lot of time paying back my friends and family that helped me into the deal. So by not using so much leverage, you can be a lot more stable.

Our current funds are non-leveraged. So that’s actually helped us tremendously when this pandemic happened, because we weren’t forced to do any fire sales, we weren’t forced to make distributions to our investors, and we didn’t lose any money. We just got delayed by a couple months. I think that concept of over-leveraging can apply to all investments, whether it’s real estate or not.

Theo Hicks: Perfect. Are you ready for the Best Ever lightning round?

Andy Mirza: Sure, let’s do it.

Break [00:19:39]:04] to [00:21:04]:09]

Theo Hicks: Okay, what is the best ever book you’ve recently read?

Andy Mirza: I gotta say two books, because I want to give credit to the person who turned me on to the next book. But it’s Raising Capital for Real Estate by Hunter Thompson. If you are interested in syndicating any deals or interested in starting up funds like mine, I got an incredible value out of that book. It’s written at a level where if you’re just starting, it gives you all the basic information and then some. I found a lot of information in it that I can apply to what I’m doing now; a lot of actionable information.

But his book also turned me on to Pitch Anything by Oren Klaff, and that was just an incredible book to me. Especially when it talks about framing things and just how you interact with other people, I thought it was incredibly valuable. So I put those two books and I just read those in the last couple months.

Theo Hicks: If your business were to collapse today, what would you do next?

Andy Mirza: Wow. Okay, so if my business were to collapse… So I don’t think the industry will completely collapse. I think there are different parts of it that I would go to, because my partnership with my partner, Sean, he developed these incredible relationships with these funds on Wall Street, and I don’t have the same level of relationships. So I’ve actually thought of what would happen if, say, something happened to my partner, and I can’t do business anymore. So I guess I’m cheating on answering this question, but I would stick with notes because I know that notes are going to be here forever. But I would go into the seller finance notes that I could find. I would be fishing in a different pond to find notes for me to buy. So that’s my answer.

Theo Hicks: Perfect. And then lastly, what is the best ever place to reach you?

Andy Mirza: The best place to reach me, you can send me an email at Or you could just go to my website, and send me a message there.

Theo Hicks: Alright, Andy. Well, I really appreciate you coming on the show and sharing your experience, your insight into non-performing notes. We talked about the process a lot; so a lot of good information. In that part of the conversation, you gave us some details on the investor profile – someone who’s going to be investing in non-performing notes. You gave a lot of differences between the way you do and what other people do. And then we talked about your best ever advice, which is to be very careful about leverage. You gave an example of the negative consequences of being overleveraged and why you currently have your funds as non-leveraged, which you mentioned is very helpful during this time of the coronavirus pandemic. So Andy, thanks for joining us again. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Andy Mirza: Thanks for having me on the show.

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