The post How Mineral Rights Work appeared first on Think Realty.
Understanding mineral rights can open your eyes to their benefits.
Curious about mineral rights? Read on to learn more about how they work and the benefits of owning them.
Mineral Rights: An Example
Mineral rights work like this: Let’s say you own some 128 mineral acres in the middle of Oklahoma’s Anadarko Basin. If you lease it to an oil company for three years, you could get $2,000 per mineral acre as a lease bonus ($256,000 total). On top of that, you could also receive 18.75% of all future revenue for oil and gas produced and sold from your 128 mineral acres. As wells are added to your drilling unit, you would get more revenue streams added to your net income. As a mineral owner, you would pay zero dollars for exploration and zero dollars for production—and you would be responsible for 0% of the liabilities.
If you want to invest in mineral rights to generate passive income from the real property but have limited time or experience, you could partner with an existing mineral rights investment professional. In this scenario, you need to be a high-net-worth individual or an accredited investor. You would have direct access to and ownership of intangible assets without the pain of trying to untangle mineral rights laws on your own.
Benefits of Owning Mineral Rights
Owning mineral rights has lots of benefits. First, mineral rights owners get royalties. These are paid by energy companies that lease the rights and develop the minerals. In this situation, a very typical royalty is 12.5-25% of the revenue generated by the minerals on that land. It’s quite lucrative!
Conveniently, mineral rights owners don’t have to pay for the cost of drilling, developing land, or maintaining equipment. Also, mineral rights owners don’t take on the liabilities that, say, the actual oil company that does the drilling takes on. This makes mineral rights ownership a low-risk, high-yield source of passive income. Furthermore, mineral rights are more liquid than general real estate and usually generate recurring income.
Another advantage to mineral rights ownership is being able to use tax code 1031. This lets you defer capital gains taxes on any real property sale by reinvesting the proceeds in mineral properties.
There will always be a need for minerals. At Eckard Enterprises, our goal is to use our deep expertise in oil and gas to maximize investments and returns. Let us be your guide. We’ll provide you with the expert resources and background necessary to make insightful energy investments. Contact us to learn more about mineral rights investing today.
The post How Mineral Rights Work appeared first on Think Realty.
