Entering The Cryptoverse (BlockFi)

I’m fairly skeptical about cryptocurrencies, but as the market continues to grow (Bitcoin total market cap is approaching $1 trillion) I feel that I need to have some exposure and a better understanding of the potential and pitfalls.

Market cap of 10 biggest cryptocurrencies, as of 12-10-2021 from coinmarketcap.com

I’ve listened to a few episodes of Animal Spirits with the head of BlockFi and found the premise of the platform interesting. [Here’s one of the episodes from 2020.] So I decided to dip my toe in the cryptoverse with some small weekly investments in Bitcoin, Ethereum, and DAI on BlockFi.

You purchase cryptocurrencies on the platform, and then earn a yield / interest rate on the holdings. The rates vary but currently range from 3.25% for Pax Gold to 9% for DAI. (I don’t even know what those coins are.) Bitcoin is the largest cryptocurrency and earns 4.5%. So by putting money in BlockFi you have exposure to the ups and downs of the value of the crypto you own, and also earn interest on the holdings. Additionally, they have a credit card with Bitcoin rewards which looks really cool but I probably won’t generally use since the reward rate is 1.5% – not bad but I mostly use my Capital One Spark cards at 2% cash back.

slick card image from blockfi.com

There’s a referral bonus of $10 if you’re interested in trying out the platform.

We’ll see how investing in crypto works out over the next few years.

California Student at Home? Check Your Mail for $738 Per Student

During the pandemic there have been a number of programs created to support workers, families, and students. In California P-EBT 2.0 is currently being distributed – funds for many California students. (P-EBT is a SNAP / food stamps program providing money for grocery purchases.) The cards are being mailed out to California families from early August 2021 through November 2021. I recently received two of the P-EBT cards for my elementary school children, with a value of $738 each.

The California Department of Social Services has a good summary of the current P-EBT program and who qualifies. The program covers a broad swath of students and schools and there is no application process – you may be sent a card without expecting it, as our family did.

I wanted to write up a brief post on this program specifically because the program doesn’t seem to be widely known, applies to families that likely haven’t received this sort of benefit in the past, and because the cards come in very non-descript envelopes that I imagine are being thrown away as junk mail by many.

Here’s the envelope our card arrived in – it came from South Dakota and no mention of P-EBT, schools, or even the state of California. When I picked it up I thought it was a credit card solicitation.

The letter inside has quite a bit of information and the process to register and activate the card is pretty simple, as long as you have the personal information for the student receiving the card.

The San Diego Hunger Coalition has a helpful post with information about the distribution timing for the P-EBT cards, phone numbers you can call for help, and more.

I had not used a food stamp / P-EBT program in the past and was surprised at how easy the card is to use. You simply swipe it like a debit card, enter the PIN, and payment is processed for any grocery items on your bill, with non-grocery items needing separate payment. I’ve used the card at Vons, Target, and even on Amazon. If you receive P-EBT but don’t want to use the funds personally, I’ve found a few websites where you can donate P-EBT funds online, but none in California. (Perhaps there are ways to do this locally in San Diego – if you can drop a Comment on this I’d appreciate it.) Or, as this Chicago story notes, you can purchase items to donate if you like.

I hope if you live in California and have school-aged children you’ll keep an eye out for these benefit cards, and that yours doesn’t end up in the rubbish bin. The money is a significant amount and can be a great help for many children.

So excited to be back in school!

Creating an LLC – Quick Guide

Over the years I’ve been asked a number of times about how to set up and operate an LLC. This is typically in regard to “running a business” and coming from someone that is buying an investment property or in a similar situation. This post is a quick guide to getting an LLC set up (and as the disclaimer at bottom notes, not legal, business, or tax advice).

After completing a renovation, consider protecting your investment with an entity like an LLC.

First – why create an LLC? Primarily for liability protection. You do not need an LLC to conduct business. You can operate a business as a sole proprietor without any legal form or as a partnership (formal or informal) or any other entity structure. An LLC provides liability protection if a suit or claim impacts the assets that the LLC holds. In the case of real estate this would typically mean the LLC holds the title to the property, and any debts, and if the property had a loss or claim the LLC entity would help to protect the other assets of the LLC owner(s). The loss or claim could be a discrimination suit, property damage that exceeds insurance coverage, or a personal injury on the property. In addition to creating an LLC there are a variety of other tools you can use to reduce liability exposure, which I call the “The Protection Pyramid“.

If you do want to create an LLC the steps to do so are pretty straight-forward, but can be a bit intimidating if you aren’t already familiar with the registration and creation processes. An attorney can be a great help if you don’t want to do the paperwork yourself and will typically run in the range of $500 – $2,000 in my experience.

If you want to create an LLC yourself the basic steps are:

  1. State registration – An LLC is created at the state level, by filing the formation documents with the Secretary of State. You’ll need to complete an LLC Operating Agreement and/or Articles of Organization to create the LLC, which are then provided to the state. You can hire an attorney to create these documents, use an online provider like LegalZoom, or download a free template like this one. I would generally opt for the attorney option, at least for your first LLC to ensure it’s done properly. The state will then provide you with a state ID number and the LLC is officially created. There will typically be a small fee to register, and an annual form and filing fee for future years. (For an example, here is the Nevada website to register a new LLC.)
  2. Federal registration – After creating the LLC at the state level you will want to register with the IRS to get a Federal Employer Identification Number (FEIN). You can do this online on the IRS website. This process is free.
  3. Bank account – For any business entity like an LLC make sure to keep business transactions separate from personal transactions. This goes for any income and any expenses. It will also make it easier to report the business activity at tax time. You can set up this account at any bank but should consider monthly fees, ATM access, and other banking offerings you may want. I also highly recommend a business credit card so you can conveniently make purchases in addition to the checking account. I personally like the Capital One Spark Business Card which offers 2% cash back on all purchases. Credit cards also offer better fraud protection than bank accounts, and reward programs like cash or travel miles.
  4. Financial software – This is not a required step, but one I highly recommend. Financial software organizes all the transactions for the business more easily and can create an income statement, balance sheet, or other reports. I use Quickbooks but you can also use NetSuite, Freshbooks, or a variety of other options. Whichever you pick, having online access and bank account syncing are critical tools to consider.

If you are the sole owner of the LLC you will include the business activity directly on your personal tax return each year and not likely have additional income tax filings required. If you have more than one owner you will likely need to file an annual income tax return on Form 1065 for Federal purposes and a state specific LLC return as well. The LLC does not pay income taxes, but will provide a Schedule K-1 to each LLC owner with their share of the business activity, which is incorporated into their individual tax return (Form 1040).

I hope this quick summary of the process to create an LLC is helpful to you. An LLC can be a great tool to give yourself additional liability protection at fairly low annual cost.

An LLC can help avoid the prick of claims on your assets. Ouch!

Note: The content of this post is for informational and discussion purposes and is not financial or tax advice. Consult with an advisor before relying on this or any information.

Hiking Cowles Mountain – Big Rock Trail (NE Trail)

I’ve hiked Cowles Mountain many times with my son since he was a baby, but until today had only used the Golfcrest Trailhead, the south-west and most popular starting point. Today we headed to Big Rock Trailhead, the north-east starting point.

The distance was about 2.1 miles from the trailhead to the peak and the ascent took us an hour with the return trip taking about 40 minutes. It certainly felt longer and more strenuous than the Golfcrest trail we’ve typically done. (Might be my post-Covid weaker body, or actually is a harder trail.) There was a great breeze going and this eastern trail had more shrub shade than the western side, to my surprise. Not a lot of shade, but some portions had a bit. We sat at the top and had a picnic lunch, which is a great way to take a nice break and enjoy a chat and views at the peak.

Guest content from my hiking partner, Ambrose:
“My favorite part was eating lunch. I want to do another hike sometime – one with a waterfall at the end.”

Cowles Mountain is one of 5 peaks in Mission Trails Regional Park that make up the “5 Peak Challenge“. The map below highlights the location of the peaks and it’s fun to do them all whether solo, with a friend, or with your family. I did the 5 Peak Challenge a few years ago solo and it was a great, challenging day.

Ask JPA – When do you choose to sell a rental property?

Ask JPA is an irregularly scheduled question-and-answer series of posts. Have a question for JPA? Send it to john.patrick.anderson@gmail.com. Cheers!

Hi John,
I know this is not a one-size fits all question / answer. When do you choose to sell a rental property? Let’s assume that I own property that is a good area that is appreciating in value, it’s also easy to rent (positive cash flow), and say that I’ve paid it off. When do I choose to sell it? I know that depends on a lot of factors: what would I reinvest etc? Just wondering what some of the models that you use for exit strategy? Maybe never sell – just C/O refi and reinvest in another unit? 

Dear Thinking of Selling,

Deciding when to sell a property will depend on many factors – current market values, current interest rates, needs or plans for the equity in a property, among others. If you generally think you want to sell or tap the equity in a property there are a few major options that I would associate with various motivations:

  1. Sell the property, pay capital gains taxes, and have the funds free and clear for anything. Probably the best bet if you’re tired of owning property and being a landlord or want the money to be liquid and available for travel, spending, or non-real estate investments. Paying taxes isn’t fun, but capital gains rates are lower than ordinary income tax rates which is a benefit.
  2. Do a cash out refinance and use the proceeds to invest in additional real estate, or for other uses. In the current mortgage environment interest rates are very low and you can both lock in very low rates for decades to come and access the equity in the property (up to 70% or 80% loan-to-value) and take the funds to do anything – pay off credit card debt, go shopping, or buy another property. The cash out refinance will increase the monthly mortgage payment so you may want to look at the current property performance and if the property will still cash flow well for you.
  3. Sell the property and do a 1031 exchange. A 1031 has some specific rules to it but basically you sell the property as normal but the funds go to a 3rd party administrator and have to be reinvested into another property within a relatively short time period. A 1031 exchange defers any capital gains taxes, so you don’t have a tax bill until the new replacement property is sold. 1031 exchanges are popular with real estate investors for the tax deferment, and as a tool to scale up in size. If your property has had good appreciation you can take that appreciation and lever it up with a new investment property mortgage. (For example a typical investment property will require 25% down payment so if you have had $100K of appreciation that will allow you to buy $400K of property.)

If you want to continue being a real estate investor I’d highly recommend Option 2 or 3 above. If you don’t, then Option 1 is probably your best bet. Option 3 will be best if you want to grow your real estate investments and Option 2 is better if you’re not sure if you want to invest in real estate or other areas.

I personally plan to keep investing in real estate consistently for many years to come so I would likely do the cash out refinance if there is a good amount of equity in the property, and given the current low mortgage rate environment. I’m not sure where your property is located, but that may also play into the picture as some places like California can have substantial tax benefits to holding a property long term rather than selling and reinvesting in another property.

Hope this helps and thanks for asking!

. – JPA

Some current multi-unit properties for sale in San Antonio, TX (from Redfin website). Scaling up from a single-family home to a four-unit building would be an option for a 1031 exchange.

COVID-19 Antibody Testing – Now Included with SD Blood Bank Donations

The San Diego Blood Bank recently started testing all blood donations for SARS-CoV-2 (COVID-19) antibodies. I gave blood last month and received the antibody results about 7 days after my donation via the Blood Bank donor portal, a personal site that gives a donor history, blood type, and now COVID-19 antibody results.

Per the Blood Bank, the antibody test “detects if your immune system has developed antibodies to the SARS-CoV-2 virus. Results of SARS-CoV-2 testing is intended for qualification of COVID-19 convalescent plasma and may NOT be used for diagnostic purposes.  As this is NOT a diagnostic test, it will not detect active COVID-19 infections or recent exposure.” More information on the antibody test can be found on the Blood Bank related FAQ page here.

If you are wondering if you may have already had COVID-19 donating blood may be a free, convenient way to find out while also providing a blood donation to help others in the community.

You can schedule an appointment to donate blood with the San Diego Blood Bank at:
https://www.mysdbb.org/donor/schedules/zip

Sunrise over Americas Cup Harbor on November 28, 2020. (Not a blood donation center, but was a pretty morning.)

Short Term Rentals in San Diego – The Newest Rebuke

Tomorrow, December 3, 2020, the San Diego Planning Commission will consider a proposal to greatly reduce and regulate the short-term rental industry in the city. This item will likely move to the City Council for consideration in 2021.

The relevant Agenda for the meeting (STR issue is Item 1) can be found here: https://www.sandiego.gov/sites/default/files/dsd_pcagenda_20201203.pdf

This Agenda item is based on the Memorandum of Understanding (MOU) created between UNITE HERE Local 30 (a labor group) and Expedia Group. (MOU below)

memorandum-of-understanding-on-stv-rentals-Nov-2020Download

You can add a comment or sign up to give live testimony via the Planning Commission website. Below is my short comment, opposing the MOU and supporting the many thousands of hosts in the City of San Diego.

The view from a recent Airbnb stay in Northern Wisconsin.

——————————–

This amendment / action would reduce the number of short term rentals in San Diego by approx. 65% and harm thousands of property owners during a period of economic turmoil. I urge the Planning Commission to oppose this amendment / action.

I agree with requiring a license number for each unit rented on a short-term basis, and requiring the posting of this license number on any online platform. I also agree with enhanced enforcement of noise and other nuisance laws, including an escalating fine scale for repeat offenders.

Short-term rentals are immensely popular (and have proven to be more resilient than hotels and other accommodations in the current Covid climate). I hope the Planning Commission will embrace short-term rentals and support this long established opportunity for San Diegans for the years to come by opposing this item. Thank you.

Mount Laguna Morning Hike

The Laguna Mountains lie about 45 miles straight east of Downtown San Diego. Reaching a maximum height of 6,378 feet they have a very different climate from the nearby beaches that San Diego is better known for. The many campgrounds in the Lagunas are our favorite places to camp near our home.

This week I took our older kids and some friends for a morning hike at the Wooded Hill trail in the Lagunas. It had rained a bit in San Diego over the weekend but we didn’t expect a snow covered scene when we reached the higher altitudes. It was a gorgeous morning, about 50 degrees, and with both evergreen trees and some oaks starting to change to fall colors.

We walked about 2 miles in 2 hours, taking time to throw snowballs, climb boulders, and enjoy the sunshine at the summit of the trail. (Strava recording in images below with more details along with some scenery photos.)

On the return journey to San Diego, about 50 minutes total drive time each way, we stopped at the absolutely fabulous Grand Ole BBQ y Asada in Flinn Springs (the Eastern edge of El Cajon). With current Covid restrictions the lawn games weren’t available but it was wonderful to sit in the 70 degree sun with a light breeze and enjoy the best barbeque in San Diego County. If visiting San Diego or live here, highly recommend a trip and the brisket or beef ribs.

San Diego has great beaches and wonderfully temperate weather for which it is mostly, and rightfully, known. The broader area has a wide variety of plants and land forms to explore and many like Mount Laguna deserve more love.

Daily Affirmations + Start Page

A couple of years ago I created a custom webpage on my site to be the default start page for my browsers / computers. Recently, I updated the start page, which you can find here.

Growing up in a Catholic family it was typical in our house to have a laminated Saint card scotch taped to each bathroom mirror in the house. St. Francis of Assisi, St. Patrick, and many others featured over the years. These cards would have an image of the Saint on one side of the card and a prayer on the reverse side. Having something on your bathroom mirror is likely to be seen, and consequently read, frequently.

Inspired by, and in homage to, those Saint cards growing up I also used my new start page as a daily affirmation for our household. I’m sure it will change over time but especially in the odd times we are in it seemed important to have a repeated positive message in our days.

My first attempt at a daily affirmation is:

I am strong.

I am smart.

I act with integrity and honesty every day.

I am grateful and respectful.

I smile and am happy.

Although the above items aren’t always true, I’ve become a fan of the idea that simply stating something makes it more likely to become true. In many cases the statement has to come first, to make the actions required to realize a goal happen. Human psychology can be a curious beast, but one that is inextricably linked to what our days and lives look like. A daily affirmation is something I almost definitely would have scoffed at in the past, but seems like a good idea today. Perhaps it’s an idea that will be useful to you as well.

An example Saint Card

Toddler Shoes

One rule I have for our babies is that they can not be dressed in restrictive clothing – footie pajamas, onesies that are too small, and the like. It restricts their ability to grow and they need to be tall for the higher earnings potential and physical intimidation factor. Learning is great, but you can’t teach height.

My wife thinks this is dumb.

To prove my point I bought our 2 year old new shoes, 3 sizes too big. Lo and behold 6 months later the shoes fit.

Proven correct once again.