Another week, another promotion that makes something real (and maybe even a little boring) sound like an incredible, sneaky way to earn income.
Such is the way things go in the dark, dank recesses of the teaser mines here, deep under Gumshoe Mountain.
So what’s being teased now? A way to “tap the coffers of the IRS” for a steady stream of cash. And yes, it’s “Perfectly Legal!”
OK, here’s a bit of the pitch, which is from a letter trying to sell subscriptions to The Wealth Advisory:
“… here’s the good news: There is a way for you to get all the money you pay in taxes back from the IRS… and more.
“Take Casey Hummel in Arizona, for instance.
“She pays her taxes on time every year.
“But in addition to her tax return, she also gets a check courtesy of the IRS every 90 days.
“She cashed a check on February 26, 2015 for $4,192.
“And she’ll keep getting paid every three months for as long as she chooses.
“The story is even better for Bob Schmidt in South Carolina.
“Bob just collected a $9,257 check thanks to the IRS. And he’ll get this payout four times a year!
“Casey and Bob are part of a group of savvy Americans who have discovered how to tap the coffers of the IRS for a steady income stream of thousands of dollars.”
Oh, if only we could all join that group of “savvy Americans!”
Wait, we can! Just send your credit card info to Angel Publishing, and you’re in!
And, of course, you get to have your revenge on those nasty ol’ bullies at the IRS…
“Make the IRS Pay!
“When was the last time the IRS saved you any money?
“I’ll bet the answer is never.
“That’s because saving you money isn’t the agency’s goal. The IRS tries to intimidate people like you and me into paying MORE taxes than necessary.
“Most people never do anything about it. But I’ve had enough of being bullied.
“And so have a small group of Americans who are turning the tables on this money-grubbing band of thieves.”
For the record, and in case any auditors happen to be reading this missive, I’ll note that I’ve always had perfectly pleasant interactions with the IRS… I don’t like paying taxes, because, of course, no one likes paying taxes… but I don’t think the IRS is cheating me. If I’m grouchy about anything, it’s the complexity of the tax code, carefully poked at by every single member of Congress over 200+ years with the sole intent of rewarding their friends and punishing their enemies, and I would imagine that working at the IRS and trying to interpret the massively convoluted tax code is probably awful.
But anyway, what is this “revenge” you can take on the IRS? How are these people getting these payouts of $1,260… $2,902… $5,912…?
“They’re simply taking advantage of a little-known loophole you can use to pocket an extra $3,000 to $19,000 this year. And the year after that. And the year after that… for as long as you wish.
“It’s easy. And it’s all ethical and legal.
“The money you’re getting is not a loan. And there’s nothing to pay back.
“After all, it’s YOUR money — you’re simply putting it back into your pocket.”
Oh, sorry — those weren’t clues, that was just the continuing balderdash. Here are the clues:
“These checks are actually not coming directly from Washington, D.C.
“They are coming from a small town in Massachusetts called Newton.
“It’s a suburb about seven miles outside of Boston, with a little over 87,000 residents.
“But I’ll bet that most of them have never even heard of what I’m about to tell you.
“You see, the U.S. government is the nation’s largest landowner, with over 900,000 buildings.
“But every year, it shells out over $4.2 BILLION to rent office space.
“That also makes it the nation’s largest tenant.
“It seems foolish that the government would fork over all that money in rent every year when it could save millions by simply purchasing the buildings themselves.
“But that’s exactly what it does.
“For example, when the Health and Human Services’ lease expires on its building in Rockville, Maryland, the agency will have paid rent on a private building for 60 years!”
Ah, so we’re partway there — this means that what they’re teasing is a company, probably a Real Estate Investment Trust, that owns office buildings, particularly buildings with federal government tenants, and makes money from the lease payments those tenants make… and distributes most of the cash flow to shareholders in the form of dividends. Nothing magical or sneaky about that, there are lots of office building REITs and a few that specialize in government office buildings… but which one is it they’re teasing here?
“Located in the town of Newton, Massachusetts is a company that collects rent almost exclusively from the U.S. government.
“And it owns a substantial amount of property the IRS occupies.
“In fact, the IRS is its biggest tenant (in terms of square footage). It has dozens of leases with the IRS at buildings throughout the nation.
“For example, the IRS renewed its lease on a building it rents from this landlord in Fresno, California.
“The lease is for $8 million per year until 2021. And there’s no early termination clause in the contract.
“So that means the IRS is legally obligated to pay the landlord $700,000 a month until 2021.
“And this is revenue that this landlord collects from just one property it owns….
“All told, this landlord owns 72 properties across the United States, 51 of which are leased to the U.S. government.
“And by ‘partnering’ with this IRS landlord, you can collect a slice of that lucrative rent money… without actually owning ANY physical property.
“In fact, you can become a partner today starting with just $22.”
Ready for your answer? Thinkolator sez this one is Government Properties Income Trust (GOV), which does indeed own 72 properties and lease 51 to the federal government. It’s an externally managed REIT, meaning that it’s really more like a fund that pays management fees to a real estate manager, in this case RMR, and the manager runs the day-to-day operations of the sales, leasing, etc. work of a typical landlord (They just restructured their agreement a bit this Summer, RMR was partially bought out by the many REITs it manages, but it doesn’t look like it will change the REIT itself as far as I can tell).
On the surface, GOV looks freakishly cheap — it carries a huge yield compared to most other office REITs, so investors are expecting either that the dividend will never grow, or that the company might have to reduce the dividend… or they’re just worried that something else bad is happening at GOV. 10% is too high for an office REIT, all else being equal.
So why does the stock carry such a high yield? It has been recommended by other publishers in the past as well — both because long-term government tenants (20-30 year leases are common) give stability even if the economy tumbles, and because the yield is above average — and StreetAuthority, for one, seems to see this 10% yield as simply an opportunity.
The IRS is their biggest tenant in terms of square footage, though they get slightly more income from Citizenship and Immigration Services — probably just because Immigration is more likely to require downtown or more expensive locations. And they do note that the Feds are getting a bit more attentive when it comes to office space, and using less of it, which might be expected to pressure GOV when it comes to lease renewals — but they do have such long terms that an average year might see only 8-12% of their portfolio up for renewal. I don’t know how to quantify that risk versus the risk of a more typical office REIT who has a dramatically more diversified tenant base but also has tenants who might, unlike the government, go out of business.
But yes, you can earn a decent yield by owning shares of this REIT that leases primarily to governments, and you can check out their June investor presentation here to get an idea of how the company is situated, and how they describe their portfolio, finances, and strategy. Analysts are not particularly enamored of GOV, they have “underperform” or “sell” ratings on it in most cases, and they don’t expect earnings or revenue to rise over the next couple years — so expectations are pretty low, and though they do have a trailing yield of 11%, which is abnormally high for an office REIT, they have not raised the dividend in three years.
Whether that yield appeals to many investors, though, probably depends on whether the share price recovers within some reasonable time frame, too. The shares have fallen 30% this year, and I haven’t looked in detail to find out why — whether it’s simply the fears of rising interest rates or something specific to GOV or their relationships with (or leases with) federal and state governments — but if it’s just the panic over interest rate increases driving the shares down then it may well be that GOV is a good buy here. Their Federal leases have CPI escalators or similar annual rent increases, and they have a good credit rating so their costs to borrow shouldn’t jump that sharply if interest rates gradually rise. For whatever reason, GOV has been a below-average REIT for a long time — over five years, it’s down about 40% while the average REIT was climbing nicely, and even over this past year when most REITs have been fairly disappointing, dipping every time there’s interest rate hike chatter, GOV has been far worse than average — the REIT index is down about 2%, while GOV is down about 30% (including dividends in both cases).
Whether that kind of lousy performance makes you say, “hmmm… that sounds like it might be cheap” or “Oh My God what a terrible stock” probably depends more on your personality as an investor than anything else, but I don’t know why it’s been so consistently weaker than peers over the years, or why it took such a nasty turn down in just the last couple months — most REITs are down since July, but they’re typically down 4-8%, not 20% like GOV.
Oh, and just to bring us full circle and share some actual numbers to connect back to the silly “collect $4,192 from the IRS” bit, if you wished to get a quarterly check for $4,192 from GOV you would first have to buy just shy of 10,000 shares, at the current price you’d be investing about $153,000. For some of you that might be a reasonable position size, but most of you wouldn’t likely invest that much in a single company… or if you did, you’d hopefully not do so just because a silly ad convinced you that it was a way to take some revenge on the IRS.
So… does GOV sound like an appealing income investment to you? It’s your money, so it’s your opinion that counts — let us know what you think with a comment below.
P.S. The same ad also cites some past ideas as still being “special report” ideas from The Wealth Advisory, including buying “Wal-Lord” to be Wal-Mart’s landlord, which we covered here years ago, and the “Drive Through Dividend”, which I don’t think I’ve specifically covered but which is, in all likelihood, a pitch for Realty Income (O).