This ad is one of so many that make me grit my teeth over the “checks” that “everyday Americans” can easily “claim” to receive thousands of dollars a month… they’re all technically true, but they omit so much that I’m sure folks who can’t afford to get sucked into this silliness end up losing money.
So let’s look at those “Federal Rent Checks” today, dear readers — this is a pitch from Money Morning, and I’m sure some readers start salivating as soon as they read the intro:
“Under an IRS directive, millions of Americans can now collect: “FEDERAL RENT CHECKS”
“Please review the following information to see how you could receive $1,795 or more every month!”
And then some language that starts to make it seem like, hey, maybe this crazy idea of me getting free checks could be real!
“You already know that it’s your tax dollars paying for each building and facility being used by the DOJ, CIA, NASA, FDA, Congress, and even the White House.
“At one time or another, citizens like you graciously covered the construction costs.”
Right, so that’s MY White House, yes? I get to charge rent on it! This is starting to sound possible, yes?
Sorry, Not really. Not like you’re thinking. Here’s the next bit:
“Currently, over 100 federal agencies are required by law to pay rent for the properties they occupy.
“This cash is flooding into the Treasury Department, where it’s being stockpiled in the Federal Buildings Fund.
“This year it will have $11.1 billion in it.
“That’s worth repeating…
“It’s an enormous, $11.1 billion pool of money.
“And some very smart Americans have discovered an investment that allows them to tap into a large portion of it.
“Their reward: A hefty monthly check.”
See what they did there? Use an insanely huge number ($11.1 billion) and then talking about a “hefty check.” Which word gets downplayed? Investment.
So yes, this is not a free check you get in the mail because you’re a US citizen and your forefathers helped buy Columbus, Ohio… this is an investment. As you’d expect from, well, an investment newsletter.
Though, of course, the emails introducing the ad don’t use the term “investment” at all… that comes later.
What’s the actual newsletter being peddled? It’s a little complicated, but they’re primarily selling D.R. Barton’s 10-Minute Millionaire Insider, which seems to be focused on technical trading and options as well as on higher-income investments. It’s a relatively low-cost letter, they offer it at $79 for the first two years, but also throw in a one-month trial to Private Briefing, another of their newsletters that after a month will renew at $99… so if you sign up and don’t pay attention or cancel anything, you’ll end up eventually paying $178 a year. You’ll probably see lots of other prices bandied about, they tend to test price points pretty aggressively in different promotions.
This is part of how the email from Mike Ward was worded:
“… it turns out some folks have uncovered an ingenious way to exploit Uncle Sam’s rent situation.
“They’ve figured out how to add their names to a special distribution list.
“This entitles them to collect what we’ve classified as ‘Federal Rent Checks.’
“Around the second week of every month, some Americans are receiving an envelope in the mail with $1,795 in it. We found others collecting over $3,000 and $5,000 every month.”
But yes, as with every single email ad that promises you that you can “enroll” or “sign up” or “put your name on the list” for some particular checks that will come flowing your way… the word they should be using is “invest”.
These checks are returns on your investment, in pretty much every case… as is said so often it sometimes gets ignored, “it takes money to make money.” The person who collects the most rent is the person who owns the biggest chunk of the building.
Still, we think, those checks… maybe they’re really “hefty?” What does “hefty” mean, anyway?
More from the ad:
“I like to refer to them as ‘Federal Rent Checks.’
“And they can be quite large.
“Some folks have been pocketing significant amounts of money…
“Like Mitchell Lorens. He is collecting Federal Rent Checks worth $2,670 a month…”
They show dozens of smiling photos of folks who are collecting these checks, in amounts ranging from about $2,000 a month to well over $100,000 a year, all of which serves to set a baseline in your mind… “hey,” you might be thinking, “even if the lowest amount is $1,795 a month, that ain’t bad!”
Which is true, of course, $1,795 a month is nothing to sneeze at… but that’s not the amount you get if you just “sign up” with one share.
And they reiterate many of the arguments that are often made about the special “checks” you can receive if you only join this newsletter and “sign up” … how it’s better than Social Security because there are “no restrictions” on who can “sign up” … but what they really do is keep punching that hot button (for anyone who’s close to retirement) and mentioning those monthly checks.
“‘Federal Rent Checks’ are issued around the second week of every month, January through December.
“And by implementing a simple strategy, you can collect them every month!
“Brad Thomas served as an advisory board member for President Trump’s original campaign.
“He compared the ‘Federal Rent Checks’ that folks like John, Bonnie, Simon, Al, and Lindy are collecting to printing money.
“Money you can count on, because it’s backed by the full faith and credit of the United States.”
So that’s enough of my huffing and puffing about the language in the ad… this is an investment they’re teasing, so what is the investment?
It’s all about government buildings — or, more specifically, the buildings that are leased by the government. Naturally, like any other business, when the government needs more office space they have to rent it — they do occasionally buy buildings, but more often the government does what it always does… rent instead of buy, because that makes the current financials look better.
And as governments have become more and more strapped, both on the federal level and in states and municipalities, they’ve actually sold more properties and leased them back to give a bit of a one-time cash infusion… just like a corporation might when they’re trying to make their books look better and become more “asset light.”
So how do you profit from that? Here’s what the ad says…
“Altogether, the U.S. Government is legally required to pay rent for 9,600 federal buildings this year…..
“And there is a way for you to receive a “Federal Rent Check” every month from these “private agencies.”
“It takes about 10 minutes to set up.
“You can even use your cell phone to get started!
“Depending on your investment…
“Each of your ‘Federal Rent Checks’ could initially be made out for $1,795.
“But over time those checks could be worth much, much more.
“And that’s because…
“The longer you are on the distribution list… The bigger your Federal Rent Checks can grow!”
So how does one “claim a coveted spot on the distribution list for federal rent checks?”
I’m afraid it’s just as simple as you’re imagining: You buy shares of a Real Estate Investment Trust that owns government buildings, then collect your dividends… it’s those dividend payments that D.R. Barton is calling “Federal Rent Checks.” And the “special strategy” he cites is… buying more than one such investment, because then your dividend checks come more regularly (most REITs still pay their dividends quarterly, but if you own a bunch of them you might time it to get a check every few weeks).
For those who are unaware, REITs are Real Estate Investment Trusts — they trade just like regular companies on the stock exchange, but they are pass-through businesses when it comes to taxes — they don’t pay corporate taxes, and in exchange for that tax exemption they’re required to pass through at least 90% of their income to shareholders in the form of dividends (with the assumption being that you’ll pay taxes on those dividends, so the tax does eventually get paid).
And yes, for most REITs the dividend payments will increase over time — that’s one of the major appeals of real estate investment, rents increase over time with inflation, so if the company manages its buying and selling well and doesn’t pay too much in overhead costs, they can increase the dividend as they raise rents.
Barton even says that…
“Down the Road You Could Be Paid an Enormous Lump Sum to Transfer the Rights to Your Federal Rent Checks.
“It’s easy to find someone to pay a pretty penny to take over your spot on the distribution list. I’ll show you how.”
No trick there… if you want to “transfer your rights” to receive these dividends, you just sell the stock. If it’s worth more when you want to “transfer” in the future, then you’ve made some money (REITS do not only go up in price, of course, just like stocks do not only go up… so you could lose money, too).
So which ones specifically are being talked about? Well, there are a bunch of REITs that have occasional government tenants, mostly office REITs (the government, after all, is nothing if not a major employer of buildings full of office workers), but there are just two who are really focused entirely on being “Uncle Sam’s Landlord” (OK, they rent space to local and state governments, too… but mostly the Feds). The one that is most often teased is Government Properties Income Trust (GOV), and the smaller upstart is Easterly Government Properties (DEA).
And not a lot has changed about the story for these two over the past few years that GOV has been relentlessly teased by one newsletter or another (it was pitched for a long time as a way to earn monthly checks from a “little known Social Security contract,” since the Social Security Administration is one of its larger tenants), but it has also been touted as a way to “earn an extra $1,003 in benefits” or “tax back the government”.
This is what I said back in December when I wrote about GOV following a Personal Finance teaser pitch:
“This one has a super-high yield (about 9% now), but I’ve never really liked it. It’s nice to have great tenants, and the government always pays its rent on time, but GOV has never been able to meaningfully improve their performance on a per-share basis, and has no ability to raise the dividend (they’re more likely to need to cut it, unless they sell properties to generate more cash flow — the dividend is much higher than their FFO per share). I still prefer Easterly Government Properties (DEA), which is a smaller and similar company with a much nicer income statement and a lower (but slowly growing and more sustainable) dividend, though I don’t own either.”
Really, the only thing that has really changed in recent years is the share price — in the past three years the price of GOV has dropped 14%, and the price of DEA has risen 23%. GOV pays a very high dividend but has not been able to raise the dividend in many years, and DEA pays a lower but rising dividend, so the total return has been positive for both — GOV has returned 11% in three years including the dividend, DEA 43%.
And right now it’s that huge dividend yield that is no doubt catching some attention — GOV has always been a relatively high-yield REIT, even back when it yielded 8 or 9% in past years, and now the share price has fallen enough that the (unchanged) dividend yields almost 11% for current buyers. That’s what happens to REITs that investors don’t particularly like, or when they think that the dividend is unsustainable — as it may eventually be, since GOV has almost always paid out more cash in dividends than they generate from their business.
The same is true of DEA, they pay out almost exactly as much in dividends as they generate in operating cash flow, though DEA is smaller and growing more aggressively, and raising the dividend (which perhaps helps to to keep investors more confident), and DEA has a much smaller debt burden so far relative to its equity, so they do have a bit more flexibility to borrow as they grow — which helps to sustain the dividend growth.
The other little oddity here, if you’re interested in researching GOV, is that Government Properties Income Trust is externally managed — their management is provided by the RMR Group (which is also publicly traded, ticker RMR) in exchange for a fee. That’s not entirely unusual — externally managed REITs just pay a management fee instead of having employees — but in this case GOV also owns shares of both RMR itself and of another RMR-managed REIT, Select Income REIT (SIR), which in turn has spun out another REIT and still owns part of Industrial Logistics Properties Trust (ILPT).
I’d generally prefer to own a REIT whose management team is entirely focused on making that REIT specifically successful, rather than an externally managed REIT which shares leadership with a handful of other real estate companies… and really, when you look at the past performance you can see where the value is accruing — it’s not to the folks who own the properties and collect those “Federal Rent checks”, it’s to the company that manages those REITs.
To be fair, those REITs managed by RMR have been above average over the past few years, as illustrated by this chart, compared to the Vanguard REIT Index ETF (VNQ)… but it makes me squint a little bit when I see how much dramatically better that external manager has done.
So I come down about where I always seem to come down when it comes to Government Properties Income Trust: If you can’t improve per-share performance over time, I’ll look elsewhere… even if the yield hitting 11% does start to get incrementally more tempting. And Easterly Government Properties still looks more appealing to me than GOV, but neither is tempting enough to get me to buy the shares at this point.
I do always like to refer back to those “checks” they cite in these ads and do the math, to illustrate what kind of investment they’re talking about — they say that you can start collecting “as much as $1,795 per month”, and I’m pretty sure that’s the lowest number they cite for ongoing “checks”. What kind of investment would be required for that?
Well, if you’re just talking about buying GOV shares, which are very high-yielding (and therefore the easiest way to boost that “check” amount, relatively speaking), their dividend is 43 cents per quarter, per share. That’s per quarter, not per month, so if you want to get $1,795 per month you’d need to get a quarterly dividend of $5,385. If we round down a little bit, then to receive a quarterly dividend of roughly $5,300 you’d need to own about 12,500 shares of GOV. At $15.68 per share today, that would cost you about $196,000. A fairly steep investment for those who are tempted by the overhyped promises of a $79 newsletter.
Certainly it’s true that REITs can compound their earnings, and you might turn a smaller position than that into a meaningful stream of income over many years — particularly if you don’t take your dividends in cash but instead let the dividends reinvest and buy more shares, increasing your stake… but there’s no magic to it other than the mathematical magic of compounding, which works best when it is allowed to work undisturbed for a long period of time.
If you buy 100 shares of GOV today for $1,568, for example, you’ll receive enough in dividends to buy almost another three shares next quarter (most brokers will do this reinvestment automatically and without a fee, including partial shares), then three shares the quarter after that if the price and dividend are still the same, and that does add up so soon your income is making more income… but it takes time and a steady stock, and there are external impacts from things like tenant bankruptcies (probably not the US government, but they are trying to shrink their office footprint), or from rising interest rates (which can increase costs for borrowers like REITs, and also make bonds relatively more appealing than REIT shares for some investors). And, of course, for a relatively volatile REIT like GOV that has dropped from the mid-$20s eight years ago to a low of $12 recently, the pain of seeing that drop in value in your portfolio might not be fully masked by the ongoing dividend payments.
But it is, at least, quite a bit cheaper than it has been for most of the past decade… so that’s something.
Your mileage may vary, of course, and I’m sure some of you have looked at these stocks before — perhaps you even own them. What do you think? Getting cheap enough to buy GOV here? Like that high yield even if it can’t grow? Think things will start looking up for the government building owners? Let us know with a comment below.