Today I thought I’d explain what’s being teased in ads for Andy Crowder’s High-Yield Trader Inner Circle service from Wyatt Investment Research… it’s a relatively expensive service, $1,495/year, and does not offer refunds (the guarantee has lots of stipulations, and the reward for complaining and demanding a refund is “you get an extra year” — publishers love the “if you don’t like it, we’ll give you more” guarantee because it means they never have to give back cash)… so you should know what you’re getting before thinking about signing up, right?
So what’s the idea? Crowder teases the strategy of getting “Stock Rental Royalties” as being similar to buying a house and renting it out… without paying the full price for the house. (That’s what most real estate investors do, too, of course, they use mortgages to cover much of the up-front cost, but those mortgages are also an obligation… so it’s not really a reduced cost, just a delayed one.)
He says that real estate has been one of the most common ways to build fortunes throughout history, but that it’s tough to get started because the up-front costs are high, and that means there’s also a big risk because most people would have a lot of their net worth tied up in one property.
So the next best thing, if you don’t have a huge amount of money to “get rich on real estate” or you don’t want to worry about maintenance or tenants, is doing something similar to being a landlord… but in the stock market.
He keeps the real estate metaphor to explain… what if instead of buying a house for $250,000, you could put down just a security deposit, only $70,000, but still earn the full rent from the house for the year and get your security deposit back in a year… with the possibility that the value of the house could also rise during that year, and your security deposit would rise in value as well (they do note that values could fall, too, so you risk maybe losing some of it, but probably not all of it).
And we can do the same thing with stocks, we’re told.
Crowder says you can “put down a ‘security deposit'” on prime, blue chip stocks for up to 75% less than retail value, and then rent those stocks out every month for thousands of dollars in immediate cash income, which is what he calls the Stock Rental Royalties Program.
This is teased as a way to get your money generating income faster, and compounding your returns faster… without having a large amount of capital to invest today. He says that the average 7-10% per year you might get from the stock market is not enough for people who need bigger gains, or who need current income.
And he provides a few examples… here are the details from one of them:
3M (MMM) today is at about $155 a share. So 1,000 shares would cost $155,480.
Instead of paying that much for 1,000 shares, you would put down $41,500 as a “security deposit”, which is about 73% less.
He says “That allows us to benefit from the price movement for a year — if it goes up, you get a gain, if it goes down your deposit will be returned at a small loss. But now you can rent it out.”
And that rental can generate some meaningful income… “$960 on February 5, $2,250 on April 15, $3900 on June 10… in total, from January to May, you could collect $16,171”
And it sounds safe…
“You’ll get your security deposit back when the year is over, and you never bought a single share.”
So you get current income, and it’s also somewhat scalable — you could start smaller with what he calls the “minimum required security deposit” of $4,150, instead of buying 100 shares for $15,500.
And a bunch of other examples are tossed out, too, including Caterpillar, Twitter, Verizon, Chevron, Cisco, Pfizer, J.P. Morgan, IBM, Exxon, Proctor & Gamble. Other than Twitter, that’s pretty much the usual suspects for any “blue chip” list of companies.
We’re told, as well, that this is open to anyone — you can collect these royalty payments in any regular brokerage account, including an IRA or 401(k).
So what’s the story?
Well, you won’t find the word “options” in their webinar or presentation anywhere… but that’s what we’re talking about. This is basically a covered call strategy, but instead of buying the underlying stock and selling a call option against your position, you buy a long-dated in-the-money option, with at least a year or so before expiration (these are often referred to as LEAPs), and then sell short-term call options against that position.
So instead of buying a house and renting it to someone for a year, it’s more like you’re leasing a house for a year and trying to make that money back (and more) by doing short-term rentals to other people… though if the house doesn’t fall in value during the year and your short-term renters didn’t have a lot of destructive parties, you do get your lease payment back.
Most people would call this a levera