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If you hang around networking functions often enough, there’s a good chance you’ll overhear someone talking about federal rent checks. That same person might smugly mention the fact that they are making a killing out of their investment.
So, what are federal rent checks, and how can you get them into your bank account?
This financial investment involves dealing with the government’s property portfolio. The federal government employs over 2-million Americans in various branches, and it also has leases on over 55,000-buildings throughout the country as well.
These leases belong to someone, and it’s not like the government gets a special discount or anything. As a building owner, having the federal government as a tenant is an ideal situation. You’re guaranteed a long-term anchor tenant, and the chances of them moving out of the building anytime soon are slim.
Since the government leases the real estate, it’s paying landlords money, and that landlord could be you. Wouldn’t it be great to earn passive income from a government-affiliated investment? Not only are you making money from the deal, but you’re helping the United States of America prosper and grow its government and economy.
However, many investors think that government rent checks are a scam.
In this article, we’ll take a deep dive into federal rent checks and see if they are a viable investment for your portfolio or something you should avoid.
Federal Rent Checks Program Explained
So, how do federal rent checks work, and what’s the system behind the program? Which government departments have exposure to the program, and who’s regulating the operation? As discussed, the feds are paying for office space all over the United States.
The government sets a budget for the money required to settle the leases involved with the rental of real estate. Every year, the Federal Buildings Fund receives funding of $11.1-billion for government office space rentals.
The legislation involved with regulating the Federal Buildings Fund requires that the fund distribute the money to private-sector agencies. By being involved with these private-sector agencies, you get the opportunity to earn a federal rent check every month.
According to websites offering investment opportunities in federal real estate deals, investors in the program could qualify for checks of up to $1,795 per month.
This is basically a story to get you to invest in REITs.
All this sounds too good to be true, but the Federal Buildings Fund is a legitimate entity. Public law 92-313 amended the Public Buildings Act of 1959 in 1972. The Federal Buildings fund takes care of all of the government’s real estate needs, including leasing buildings from private entities.
A second government agency, the General Services Administration (GSA), is responsible for leasing all real estate for federal office spaces from the private sector. This organization makes sure that all landlords and organizations receive payment on time and for the correct amounts.
REITs – How They Can Land You a Federal Rent Check
However, being a landlord involved with dealing with the GSA is not for everyone. It’s not like you can buy a $50-million building in a city and then rent it out to the Feds for income. To take advantage of getting involved with receiving Federal rent checks, you need to locate a REIT.
A REIT, or Real Estate Investment Trust, is a group of investors collaborating funds toward a property portfolio. This portfolio included building rented to the federal government. REITs typically have an organizational structure with trustees and beneficiaries.
The business produces income through rental agreements and then distributes this income as dividends to investors in the trust. Therefore, to participate in a REIT, all you need to do is make a financial contribution. There’s no need for you to try and finance that $50-million building on your own.
Read: What are REITs? Complete Guide to Real Estate Investment Trusts
Are REITs Legit?
Real estate investment trusts operate like regular companies listed on the stock exchanges. However, they have special considerations and benefits when it comes to paying taxes on profits made through investments.
REITs are what’s known as a “pass-through business.” Therefore, they don’t have top [pay the government any taxes on dividends distributed to shareholders in the company. To qualify for this special tax exemption, REITs have to follow specific rules and regulations.
Possibly the most essential criteria for qualifying REITs is that they need to distribute at least 90-percent of all income generated after expenses, as dividends to shareholders. The government allows this tax break for the REIT because it assumes the shareholders are paying capital gains taxes on the profits they make form the investment.
Most REITs that are operating as government landlords will continue to experience an increase in dividends over time. Landlords increase the cost of leases each year, increasing cash coming into the REIT, and the profits it distributes to shareholders.
The steadily increasing dividends make REITs appealing to investors that are looking to grow their capital accounts. The appeal in REITs comes from the trust’s ability to outpace inflation with increasing costs of leases to the government. REITs typically have low operating expenses, minimizing the costs required to operate the trust.
According to information from Nareit, there are over 225 REITs registered with the Securities and Exchange Commission (SEC) in the United States. Many investment firms also believe that REITs are a good investment, and they offer advice on the trusts to invest your capital into for the best dividend return.
The Risk Involved with REITs
To think that investing in a REIT is risk-free is a haphazard investment strategy. Like with any other investment, there is a certain level of risk involved with tying up your capital in government rent checks.
Most people make the mistake of thinking that because they are investing in a fund that has the federal government for a client, there is no chance of losing money. While the feds aren’t going anywhere and will provide a steady stream of income into the fund, they have no power over who controls the REIT.
Before you commit your capital to a REIT in the hope of earning fat government rent checks, make sure you do your due diligence. Ask your financial advisor for advice concerning the best-performing REITs. Make sure you research the trustees and their experience as well as their qualifications.
Check the funds’ performance over the last few years, and compare the best performing funds to decide on the best investment to add to your portfolio. REIT investors do get some level of protection for their money when they invest in the fund.
However, the possibility remains that an agency that’s renting the affiliated property could vacate it, or they might decide to consolidate the real estate holding with another facility. It’s important to note that while these trusts are legitimate entities, they don’t represent your ticket to financial security and a pot of gold at the end of a rainbow.
REITs are like any other investment, and you’ll need to balance your risk versus your reward before considering allocating your capital to this vehicle. There’s no such thing as a free lunch with investing, and if you hear about a deal that’s “too good to be true,” then it probably is exactly that.
Read: Passive Income Ideas: Top Ideas to Build Your Wealth
In Closing – Key Takeaways
With more than 225+ REITs registered with the SEC, we can see that renting buildings to the federal government is a profitable business. Securing your federal rent checks is easy if you know who to ask to find the best performing trusts.
The government rents out more than 55,000-building across America, and it uses the Federal Building Fund to distribute its budget to REITs responsible for managing the buildings. Most REITs operate like any other listed company on the stock exchange.
REITs take in the rent and then deduct the costs of running the company from the income. The REIT then distributes the profits as dividends to investors in the trust. As a result, investors get “federal rent checks” for their financial investment in the fund.
When buying into a REIT, it’s the same process as becoming a shareholder of a listed company on the NYSE. You purchase shares in return for your capital, and then you receive dividends on the profits of the REIT.
You can invest as much as you like into a REIT, and the company has unique tax advantages that allow it to boost its profits. The government does not tax the REIT because it expects the shareholders to file tax returns on any capital gains they make with the investment.
It’s important to note that while real estate is a relatively low-risk investment, there is still a potential for loss of your money. The government does not control the management of the REIT. Therefore, management mistakes could end up costing you money.
Do your research before investing in a REIT. Look up the trustees, the management team, and the fund’s past performance before you put your money under its control. If you find the right REIT, it could lead to free federal rent checks for as long as you keep your money invested in the trust.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
