Can you really earn $6,880 from a “little-known Social Security contract?”

Checking out a teaser pitch from Lifetime Income Report

This is the part of Zachary Scheidt’s recent ad that really caught my eye… and, no doubt, the eyes of many Gumshoe readers:

“THANKS TO A LITTLE-KNOWN SOCIAL SECURITY CONTRACT…
“YOU COULD GET FOUR DEPOSITS OF $1,720 OR MORE IN 2017…
“FOR A TOTAL OF $6,880”

That’s a pretty perfectly headlined ad — it plays on the worst fears of near-retirees, who are already busily trying to wade through the Byzantine rules and regulations regarding Social Security and keep whispering under their breath, “oh my, that’s not going to be enough money… what can I do?”

Americans as a whole are, as you’ve no doubt seen in countless news reports, horrifically unprepared for “do it yourself” retirement — so Social Security stands out as a beacon of hope, despite the meager size of the checks in comparison to what one might hope for.

That means income-focused newsletters often play on the “Social Security” name as they try to peddle their wares, trying to give folks some false hope that there’s a top-secret way to do better but still using the comfort of that familiar name — whether it’s the old teaser pitch that got so much attention by promising to let you “piggyback” on Canadian social security, or, in this case, a “little known Social Security Contract” that can boost your income.

So… what the heck is Zachary Scheidt talking about? Well, he’ll tell you… for $79/year if you sign up for his Lifetime Income Report newsletter… but here at Stock Gumshoe we believe in figuring out the “secret” and uncovering the mystery first. Don’t subscribe to a newsletter just to learn what their hyped-up marketing spiel really means, you’ll probably just be mad and embarrassed and you’ll risk blustering through and buying whatever the investment might be, whether you like it or not, just so you don’t have to kick yourself. So we can get rid of that bit and let you know what Scheidt is really talking about first.

So what are the clues we get about this?

Well, as the lawyers no doubt will have insisted, they do have the disclaimer at the top that “this is not affiliated with the U.S. Social Security trust fund in any way — nor is it managed, subsidized or endorsed by the Social Security Administration or any other government agency.” So that’s good, but there are a few other clues along the way.

First, it’s a quarterly payout of some kind — and it’s related to a contract, which they show a heavily redacted image of in tiny print, between Social Security and the private sector:

“… a contract just like this one helped me uncover an arrangement between the Social Security Administration and the private sector…

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“One that allows any American citizen to receive FOUR deposits in 2017…

“Four more deposits in 2018…

“Four more in 2019…

“And then four more deposits every year after that…

“For the rest of your life, if you choose.”

OK, so that’s a good start — ‘quarterly’ brings to mind either a dividend or a bond coupon, but that’s not very definitive… let’s keep looking.

These “cash payouts” have apparently also been rising…

“From a low of just $11 million in total payouts in 2009…

“Word started to leak out to more Americans about this arrangement…

“And see what happened?

“The total payout has increased more than 1,000% — to a massive $122 million.”

That $122 million number is for 2015, we’re told. So that’s a good bit of info… what else?

“Even though this money can be traced back to the U.S. government, it comes from the private sector….

“You just need to follow a set of instructions to put your name on a very specific list of recipients.

“As long as you follow these instructions, it’s virtually guaranteed you’ll watch money getting deposited directly into your retirement account….

“… according to Public Law 114-38, these cash distributions are contractually required by the U.S. government.

“That means no matter what happens to the economy or to the Social Security trust fund, these payouts must go on.

“The only catch is…

“You MUST put your name on this list before July 20th.”

I think someone might have messed up in the “fact check” room at Agora Financial, or they just re-used some old copy about one of the BDCs that handles Small Business Administration loans… because PL 114-38 is mostly about smoothing the path for veterans to get SBA funding for their businesses and doesn’t likely relate specifically to any investment (even BDCs, in a meaningful way), or to the Social Security Administration. And you can’t really swing the facts to make a BDC investment seem like it’s associated with the Social Security Administration.

Are there any other clues that help us hammer this out?

Well, there is the example of one person who is “directly involved with this business arrangement” and the income he’s pulling in as a result:

“He’s just 53 years old… which means he’s too young to qualify for Social Security benefits.

“But that didn’t prevent him from receiving deposits from this special situation.

“And before the end of the year he’s set to collect a check for $18,528.70.

“That’s the equivalent of 14 average Social Security checks… in just one month.”

Usually copywriters don’t know who the shareholders are, of course, unless those shareholders are insiders — so when you see examples like this, they’re either from testimonials that their subscribers have sent in (“I just got my first dividend of $800, thanks a bunch!”) or they’re inferred from the insider holdings filings that are public. So this will help us confirm our answer in a moment… if you want a hint, the CEO of the company was 53 last year, when the data for this ad must have been compiled.

And we get a little bit more hinting about the source of this money:

“… these deposits do NOT come from the Social Security Administration or any other government agency.

“The trust fund is used for Social Security benefits only.

“But there’s another pool of money few people know about.

“The government uses that separate pool of money to run Social Security regional offices and processing centers.

“And it does that through a little-known agency called the Government Services Administration, or GSA….

“The GSA is only able to accomplish its goals through partnerships with the private sector.

“And that’s where the opportunity I’ve been talking about comes in.

“You see, we found a way for any investor to participate in this arrangement.

“Because it so happens that the government has special requirements for some of the private sector entities involved in these GSA arrangements…

“It requires by law that some of their money is distributed in the form of cash payouts.”

OK, so we’ve got some sort of investment that gets its funding from the GSA, who uses it, in part, to “run Social Security regional offices and processing centers.” And they’re required to pass through some of that money to shareholders in the form of cash payouts. And any investor can participate. What does that sound like? Yes, it sounds like a Real Estate Investment Trust (REIT) that rents space to the government…

And then, of course, we get the “step into the back room and let me show you where we keep the good stuff” part of the sales pitch:

Unfortunately, I Can’t Share This With Everyone

“See, this partnership between the GSA and the private sector is not as big as Social Security.

“Not even close.

“To put things into perspective, the Social Security Administration currently pays out more than $800 billion a year in benefits.

“Last year, the deposits from this special situation totaled $122 million.

“If this was advertised in the media…

“If the government had a press release about it…

“Or if I posted this information online for everyone to see…

“The increased interest could negatively affect the size of those payouts.

“So let’s keep this between you and me.

“I want YOU to find out how to add your name to the list of recipients — and almost immediately get a deposit…

“By law.

“Like clockwork.”

OK, so… a company that gets funding from the GSA, had “deposits” totaling $122 million in either 2016 or 2015, and for which you have to get “on the list” by July 20 to get the next “payout”. What is it?

This is, dear friends, good ol’ Government Properties Income Trust (GOV).

Yes, it’s a Real Estate Investment Trust — which means that it has to distribute 90% of its income to shareholders in the form of dividends (that becomes taxable income for those shareholders, these dividends don’t get the special treatment of lower dividend taxes). In practice, as you may well know, REITs usually distribute far, far more than they are obligated to send to shareholders (the obligation is for distributing income, but most REITs distribute a huge percentage of their Funds From Operations, which doesn’t deduct depreciation like income does).

Why is this the match? Well, GOV does indeed lease space to the Social Security Administration… so you can say that they get some money from “contracts” with Social Security.

And GOV should go ex-dividend around July 22 — they haven’t announced the specific dates for the third dividend payment this year, but last year it went ex-div on July 22 and paid out on August 22 (and that is the next upcoming payment you could get as a new investor — the second payment for 2017 is already in the shares, it went ex-div on April 21 and will pay on May 22).

(If that sounds strange to you, the “ex-dividend date” is just the day on which the stock ceases to have that next dividend payment attached to it, so if buy it on April 21 you don’t get the May 22 dividend — the person you bought it from will get that dividend, even though the check doesn’t actually come until May 22. If you bought on April 20, you do get the next dividend.)

For further confirmation, that “53 Year Old Man” we saw noted above was getting a check for $18,528.70 at some point late last year (the ad is dated January 2017, but is being distributed now and clearly also has some 2016 info in it still). If you got that as your quarterly dividend payment for owning shares, that would mean, at 43 cents a share per quarter (that’s the current dividend rate, which has been unchanged for many years), that you own 43,090 shares. Which happens to be exactly the number of shares held by (now 54-year old) CEO David Blackman.

So that’s some pretty tight confirmation for our teaser solving today. What’s the story with GOV? Why does this REIT have such a high dividend yield, now at 8%, despite the fact that it has probably the most financially stable tenants in the world?

Well, mostly it’s a case of missing growth — and investors demand a higher yield if they think the company isn’t going to grow. The dividend has been flat at 43 cents per quarter since mid-2013, and, frankly, most conservative accounting folks would probably be worried that it’s too high. Funds From Operations per share, which is the most commonly used “earnings” metric for REITs, has been flat to declining since the IPO in 2009 — for the first few years, up until 2014, the FFO per share pretty much covered the dividend and usually left a cushion of a few percent, but over the past year or so the dividend has been about 120% of the Funds From Operations.

That’s a little worrisome, both for current payouts and for the promise of future payout increases, so if you’re going to look at GOV today you’ll want to review their quarterly filings, listen to management, and see if you can figure out how they’re going to both pay the dividend and increase the dividend in the future — a great tenant base doesn’t do you much good if you’ve overpromised a high dividend to your investors and you scrape the bottom of the barrel to pay out a dividend and starve the company of any ability to grow.

I might be overreacting on that front, but the numbers do not look all that promising… the 8% yield is certainly high enough to be attention-getting, but GOV is already pretty close to a maximum acceptable level of debt and there seems to be little chance of that yield rising (any acquisitions would have to be paid for at least 50/50 with debt and new stock sales, I expect), so the stock is probably going to be extremely interest rate sensitive (meaning it is likely to fall as interest rates rise — most REITs do this, in knee-jerk fashion, but those who can increase their dividends over time should generally recover better).

As I wrote last year when I was looking at a different teaser for this same stock, I’d probably be more comfortable with the newer, internally managed, and much less debt-burdened Easterly Government Properties (DEA), which is essentially doing the same thing in buying up government-leased properties but which pays a much much smaller current yield (4.75% at the moment) but, unlike GOV, can easily cover that dividend with their FFO at the moment (both had similar FFO per share numbers for 2016, DEA at $1.37 and GOV at $1.33, but DEA paid a 92-cent dividend on that and GOV paid a whopping $1.72 dividend). DEA is also growing the dividend slowly, with more flexibility in its balance sheet (DEA’s debt/equity ratio is about 0.5, GOV’s is about 1.5), which probably gives them a better opportunity to grow the portfolio in the years ahead.

That’s not a recommendation to buy DEA, or to sell GOV — it’s just a comparison that makes me question GOV’s balance sheet and worry a bit about the sustainability of that 8% dividend because GOV’s FFO per share has been drifting lower for so long. It may be, once you look into the filings and management commentary more deeply, that you can make yourself comfortable with the way the company is planning for the future, or perhaps they’ve done something big to shake up their balance sheet or right the ship in a way that isn’t clear from my quick browse of their financials.

And likewise, of course, DEA may have some disastrous skeletons that don’t show up in a similarly quick glance — it’s just that GOV makes me nervous when I look at the financials, and DEA makes me feel a little less nervous. Both of them make me less nervous than the Social Security Trust Fund, I suppose, but neither can conjure up dollars out of thin air like the Federal Government can. GOV does carry an investment grade rating on their debt, even though it’s at the low-end of investment grade, so the ratings agencies are not overly concerned about the debt levels at this point.

And if you’re curious about the “Social Security Contract,” I don’t know specifically which property that’s connected to but the Social Security Administration is a mid-size tenant of GOV’s — it accounts for about 1.7% of their rental income, much smaller than their income from the IRS, CDC or FBI, for example, and about the same size as their annual rental check from a couple agencies of the state of Oregon (the Feds make up about 60% of income, state governments about 22%, and the rest is mostly non-government tenants or government contractors — 88% of rental income is paid by some sort of government).

Finally, though teaser pitches like to imply that dividends are “guaranteed” or that the government “requires” REITs to pay out their dividend each quarter at the current rate, that’s not really completely accurate… the rule is that REITs must pay out at least 90% of their income, but if they don’t have income they don’t have to pay anything, and since most REITs (including GOV) pay out a lot more than their taxable income the dividends could legally get dramatically smaller even if the financial picture stays the same. It probably won’t, income-focused investments like REITs try very hard to avoid cutting their dividend even if they should (like GOV maybe should, frankly), but “probably” is not the same as guaranteed. Since the actual earnings for GOV came in at 81 cents last year (that’s after taking depreciation and other non-cash charges and includes the profit or loss from buying and selling properties, unlike most FFO calculations), the requirement to maintain REIT status would be that they’d have to pay out 73 cents in dividends per share (90% of that 81 cents). They actually paid $1.72 per share, so they paid out a bit over 200% of their net income versus the required 90%. That’s not unusual for REITs, as I noted, since they monetize their depreciation by paying it out to shareholders as part of the dividend, but it does mean their legal obligation to pay dividends is much smaller than the actual dividend they’re currently paying.

I do pay my Social Security taxes, but I am not invested in either GOV or DEA, and don’t plan to buy them anytime soon — DEA might make it onto my watchlist if it takes a steep dip the next time investors start to really panic about rising interest rates.

That’s just my two cents, though, and you’re investing your money — so what matters is what you think. Want to be a landlord to the federal government? Think GOV is a good way to get there and generate some income? Let us know with a comment below.

P.S. I do always like to double-check the headline numbers, and Scheidt got our attention with his headline stating that you could get “four deposits of $1,720 or more in 2017… for a total of $6,880.” That’s probably true (though it would be “over the next twelve months” at this point, since you’ve missed the first two dividends of calendar year 2017), but these ads tend to skip over the critical “how much you have to invest” part. To earn $1,720 per quarter from GOV, you’d need to own 4,000 shares of the stock. At current prices of about $21 a share, that would cost you about $84,000.

P.P.S. I almost forgot — we’re trying to collect reader opinions about all the newsletters we cover, so if you’ve ever subscribed to Lifetime Income Report please click here to share your experience with your fellow investors. Thanks!


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Jim Hasak
Guest
Jim Hasak

Nathan Slaughter of High-Yield Investing says of GOV: “Shares of ‘Uncle Sam’s landlord’ have rallied nicely in April ahead of first-quarter results. I expect to see further improvement in occupancy, leasing activity and net operating income to continue supporting what is one of the market’s most generous distributions.”

I have no opinion of my own on the stock, and do not own it at this time.

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Lannas
Member
👍851
Lannas

I bought $DEA in my mothers account about a year ago. It seemed to me to have a good growth strategy. Currently 4.75% yield.

Steve Lourim
Guest
Steve Lourim

if you are going to buy into an REIT, why not NLY, CIM, or TWO. All pay over 10% per year

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takeprofits
Guest

This is so typical of these “teaser pitches” from virtually all of the well known publishers of investment newsletters and I have recently BLASTED several for their unethical projections that dangle very enticing carrots in front of small investors without disclosing how much you would actually have to invest to get the proffered returns, so I am happy to see that Travis included the statistics to show how ridiculous some of the projections are made to appear. How many of us have $84,000. available we would be willing to risk on s single investment? TRAVIS: “To earn $1,720 per quarter… Read more »

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Ken Wilson
Guest
Ken Wilson

I saw this advertised on Yahoo News. A complaint should be made to Yahoo.

Donald Duck
Guest
Donald Duck

Wow. Now we see why you get the big bucks! Seriously, very informative and sad results. Last time I invested $84,000 in anything it had a driveway and a much more secure and promising future than US Gov dividends. Thanks for another usewful bit of research

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garro
Guest

all this snake oil and carnival midway sales pitches from this dirt bags like agora, oxford ,et al should be illegal. They prey on the uninformed.

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Gary A.
Guest
Gary A.

I’ve owned GOV for about 5 years. Love the dividend. We’ll have to watch and see what happens to them for sure with their financial situation.

backoffice
Member
👍315

What REIT’s are a better investment? Thanks

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mark
Guest
mark

how

mark
Guest
mark

i read comments and read report thanks for into i have gotten booklets probable paid for i could not figure out what they where trying to due. I got confused but i have been investing in nly for yrs and it is finally moving. Like man said great reporting thanks..

Scott Dunham
Guest
Scott Dunham

I always get a little nervous when they can’t even get the agency name right – it”s the General Services Administration, not the Government Services Administration. (Unless this really is some secret deal featuring a secret agency…)

ehiggin
Irregular
👍31
ehiggin

Another great analysis.
Admire and respect your honesty and integrity and love your writing style.
Edward

John Eans
Guest
John Eans

Thanks for the “facts” regarding the Social Security Contract. Saved me $79 to find out the hard way!

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Tom
Guest
Tom

Thanks Travis enjoy all ur articles. “gumshoe” is a term used by railroaders instead of using the term “railroad police” could it be ur a former yardbird?

Angela Arnold
Guest
Angela Arnold

Soo- it is real. But HOW do you get your name on the list? Did I miss something?

Dionne McLean
Guest
Dionne McLean

Has anyone ever given you a phone number or an address?

Sandra
Guest
Sandra

So if I spend 79 dollars. I’ll be told I need to invest. 84000?

misscarole3377
Member
👍2
misscarole3377

This is my first time actually participating and am amazed at the sales pitches to get me to part with my hard earned money. I was curious about the latest ruse. I watched a 20 minute video in which the pitchman was explaining how I could receive funds monthly from the Big Tobacco Settlement in my state of CT and actually be able to receive even more from other states, as well. And all this would be legal, tax free, and I would be able to pass these payments to my heirs. All for the low introductory price of $39.99.… Read more »

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Carole
Guest
Carole

Thank you so much, Travis, for your enlightening article! Even if I had $84,000 lying around, I wouldn’t invest it in GOV. I read your work religiously and you have saved me a lot of money over time just in bogus “investment” subscriptions that I MIGHT have fallen for, if not for you. You are a super star!

Debi
Guest
Debi

What page of the Big Book of Income shows how to get 4 checks a year?

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mindy lafler
Guest
mindy lafler

Hello there. I’m trying to help my daughter out by giving her the information that she needs to keep herself from drowning. She is a 26 year old, single, mother of 3. She just lost her job, a good job for the area where we live, that she held for 4 years. She just purchased a home, and hasn’t moved in as yet, because she purchased a fixer-upper. 1.5 acres of land with a 3 bedroom/2 bathroom single-wide mobile home. She is a modest person, and doesn’t need to have more, more, more. She just doesn’t want to loose what… Read more »

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JKat FL
Guest

Mindy Lafler, you don’t have buy any books or subscribe to any newsletter to learn how to get the quarter payouts. Travis already showed you how: by buying Government Properties Income Trust shares from your stockbroker (symbol is NASDAQ:GOV) which currently payout 43 cents a share every quarter. The ex-dividend day is July 20th, 2017. So, buy on July 19th, 2017 or before and you will get $0.43 a share dividend (Div/yield 0.43/9.39 %). The current price is $18.31 a share. On Wed Jun 28, 2017, GOV announces proposed public offering of 25,000,000 common shares, increasing shares from 71.18M to… Read more »

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SuquitaMays
Guest
SuquitaMays

Thanks so much for information, Im new at this where would go, to start??

Vivian
Guest
Vivian

What I hate about these teasers is that is just what they are? You click to see information and a have to wade through multiple pages or listen to self important speeches, only to be told you have to pay to join some scheme that will pay you money.. Most SSI recipients do not have that kind of money, so who are you talking to here? It sounds a lot like the Big Tobacco lawsuit. You get people all riled up about something they have no control over and then go after their money. You should be arrested for fraud… Read more »

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Al Nunez
Guest
Al Nunez

Re: Zachary Scheidt’s recommendation to buy GOV.
This REIT dropped 2244% in less than three months.
Thanks Zach, good call!

Helen
Guest
Helen

Thanks for your information, it helped me greatly in understanding the teaser video I watched from Scheidt.

Jim
Guest
Jim

Thank you!

Ladd Prier
Guest
Ladd Prier

Schiedt is very like Lombardi in that the promo spiel can make you think the big payouts can be had with the small investments they tout. What they don’t say is that this only true if you’ve got a long timeline and can re- invest the payouts. And I did subscribe to his newsletter to get the info…I’m going to see if I can get a refund.

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Vin
Guest
Vin

This is just one more sham deal!

bob
Guest
bob

A current email scam invites people to take advantage of “a little known Social Security contract” which enables you to receive “little known benefits.” Think that sounds too good to be true? It should — there is no “little known Social Security contract.” What are some clues that scams might not be legitimate? They insist that the situation is urgent and issue warnings. They try to convince you to act now to avoid a dire consequence. They promise a deal or secret that the public doesn’t know about. They come from organizations unknown to you. They offer things the government… Read more »

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laura
Guest

bob, Thank you for spelling it out for us! I need to tattoo this information on my arm so I don’t forget it and get sucked in once again! Appreciate you taking the time.

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Mike
Guest
Mike

Before I get to far ,I open another tab and type the name =scam? I end up here most of the time. I like research, thank you.

michael
Guest
michael

Thank you so much for that. This guy is nothing more than a scam artist, using a half-truth to get you to pay for a subscription to his service. Think of it. This guy is purposely trying to scam elderly folks out of their money.

Mr. Scheidt, how do you live with yourself? Some people have no moral compass. You are one of those people.

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deboruth
Irregular
👍36

This pitch for Agora’s $79 “Lifetime Income Report” — presumably foreplay for later and greater spending — strikes me as the meanest and most dangerous phony-baloney to turn up in a while.. What makes it especially offensive is the population it appears to be preying on and how badly it could get them hurt. The prime market for these mysterious quarterly cash infusions — only modest in size but appearing , like manna, without clearcut etiology –comprises average American workers and retirees. Most are struggling to stay solvent on their Social Security (a connection the pitch highlights) along with any… Read more »

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Robin Bolkovatz
Guest
Robin Bolkovatz

Im in tears ihave been praying this article was true and that I get ahead im permanently disabled.its my first time that I found A house I can afford with the monthly payments but I cant raise the down payment. I thought this was my first real chance living but now its like I slammed into a brick wall.this house was perfect for my disabilitys ..the owner wont do rent to own and so inexpensive,thanks for the truth . Like that saying goes the truth hurts

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Corrine Moe
Guest
Corrine Moe

Robin Bolkovatz, There are several programs available now (2018), that help disabled Americans purchase a home. Some are state funded and few are federally funded. They will make your down payment (usually around 3%-7%) and some will also pay closing costs. (You will, most likely, have to pay for any inspections required by the lender and, from my experience, most require you have a small amount of savings. (Typically $500-$1,000) There are even some state programs that will pay portions of your mortgage if you qualify. Just google (or the search engine you prefer) “Home buying assistance programs.” You can… Read more »

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