Between the financial meltdown and Bernie Madoff’s ponzi scheme, investors are skittish about investing. But that doesn't stop folks with a new (or in the case of a ponzi, old) moneymaking scheme.
Take one pitch that recently came MainStreet's way. Whether to enrich investors, or to sell $99 trial subscriptions, or both, Investor’s Daily Edge, a Delray Beach, Fla.-based financial newsletter, is promoting a money making bonanza.
Would-be subscribers received a promotion saying that a “loophole” in the U.S. Treasury’s September bailout of Fannie Mae (Stock Quote: FNM) and Freddie Mac (Stock Quote: FRE) can guarantee ambitious investors as much as $8,881 a month in Treasury-backed checks from March 2009 to April 2011.
The promotional materials state that real estate investment trusts – known as REITs – are making big money not only for the likes Warren Buffet but for regular folks such as an accountant who has collected more than $50,000 in checks to date.
“Because of the loophole, GSEs like Fannie and Freddie have to distribute 90 percent of earnings to shareholders,” says Andy Gordon, investment director of Investor’s Daily Edge. “Because of what happened in September 2008, the government has to guarantee it.”
So according to Gordon, there are millions in this downward economy who would love to receive almost $10,000 a month from the government.
Meanwhile another investment pro called this offer nothing more than a scam. According to Ron Kuykendall, vice president of communications for The National Association of Real Estate Investment Trusts, folks are likely to get a bill for a $99 newsletter subscription, but not huge investment returns.
“There is no loophole,” says Kuykendall. “The amount a REIT pays out is based on the company’s dividend policy and the idea that any investment could pay out $8,881 every month is ridiculous”
Still Gordon maintains that what his group is selling could work. “I’m seeing yields up to 30 percent,” he says. “The research is at least 3 months old, but it’s still good.”
Andrew De Souza, a spokesperson for the U.S. Treasury and specialist in tax policy, terrorism and financial intelligence declined to comment specifically on the Investor’s Daily Edge promotion
While REITS with huge promised returns should raise red flags, not all REITs are scams.
WHAT’S A REIT?
REITs are securities that make it possible for investors to own a piece of real estate that they wouldn’t normally have the ability to buy. There are a million reasons to invest in REITs, but investors tend to focus on three main points:
Flexibility. Some REITs such as Vornado Realty Trust and Boston Properties, specialize in office buildings. Others are more heavily invested in warehouses or even high-rise apartment complexes.
Dependability. One-hundred percent of a REIT’s income comes through monthly rent payments from tenants.
Security. By law, a REIT must pay at least 90% of its earnings to shareholders in the form of dividends.
REITS AND YOU
REITs can offer investors a measure of security. They also boast a government-mandated tax structure that protects shareholders from having to pay multiple taxes on their dividends. However, investing in REITs won’t get you to easy street.
Scams are nothing new. According to data compiled by the Federal Trade Commission, con artists used Internet promotions to bilk more than 190,000 consumers out of more than $500 million in 2007.
Con artists are crafty. However truly savvy investors can protect themselves from these predators by following a few rules of thumb:
Do an Internet search. Crooks aren’t the only ones who can use the Internet. When you see something that sounds too good to be true, go online and find out as much as you can about the company, the offer and any legal action against them.
Call the company. Generally, sketchy operations are not going to be as polished as a reputable company. One phone call will confirm whether or not you’re speaking with a legitimate business or a fraud.
Use your head. Almost everyone lost money in the financial crisis. If someone tells you that they made a mint, they’re probably lying.
Times are tough and everyone, from D.C. to Duluth is looking for a way out of the financial morass. Consumers want change, but jumping at empty promises seen on the Internet will generally end in disaster.
“People get desperate when they’re in dire straits,” says Alison Southwick, a spokesperson for the Better Business Bureau. “They see what they think is a deal and throw caution to the wind.”
Investors can’t afford to run after paper tigers. So, if you really want to make the most of your time, keep your eyes open, ask questions and know that, if something looks too good to be true, then it probably is.