Why Sell Mineral Rights?

Have you been given the common advice to never sell mineral rights? The decision to sell mineral rights is a personal decision that only you can make.

The advice to never sell mineral rights comes from a good place. Family members have passed this advice along over the years because it’s good to own assets. However, mineral rights are unique asset. For many, holding onto the mineral rights does not make sense.

The reason is that mineral rights are different than most traditional assets. Mineral rights have major draw backs:

No Control: When you own mineral rights, you have zero control over the asset. The decision to drill a new well is not yours. The decision to shut in a well is not yours. You have no control over the investment. If you own a rental property, you get to manage that property and decide how to operate it.

No Diversification: Most mineral owners have a small amount of ownership concentrated in a small area. This means you are not diversified. If the wells in your area don’t perform well, the value could decline dramatically. If you invest in a stock market ETF, you get diversification among thousands of companies which spreads out your risk.

Volatility: Would you put a significant amount of your net worth in cryptocurrency like Bitcoin? Of course not! The reason is because the price swings wildly. Yet mineral owners continue to hold mineral rights that are extremely volatile. The price of oil and gas is extremely volatile. The value of your mineral rights is directly tied to the price of oil and gas. This means that the value of your mineral rights is very volatile.

Depletion: With most assets like a stock or a rental property, the value will go up over the long term. Mineral rights are a depleting asset. As that oil and/or gas comes out of the ground, it is gone forever. If they drill 6 new horizontal wells on your acreage and they produce for 20+ years, that oil and gas is gone. It won’t be worth more in the future, the value has been extracted and it will be worth less. Assets should increase in value over time, not decrease.

For a select few, holding your mineral rights can make sense. If you have significant assets and your mineral rights are a tiny fraction of your net worth, holding onto the mineral rights could make sense. For 99% of mineral owners, selling mineral rights makes more sense.

Top 7 Reasons to Sell Mineral Rights

Above, we described why holding mineral rights is risky. How do you know when to sell? The decision to sell is a personal one.

Many of our clients decide to sell for the following reasons:

Taxes

The #1 reason to sell mineral rights is to save money on taxes. When you collect royalty income, you are taxed at ordinary income tax rates. When you sell mineral rights, you are taxed at capital gains tax rates of just 15% for most individuals. In addition, if you inherited the mineral rights, you typically will only pay capital gains taxes on a portion of the sale. By selling mineral rights, you will save a fortune in taxes.

Diversification

If a significant amount of your net worth / retirement is tied up in mineral rights, selling make sense. When you sell mineral rights, you can then buy a total stock market ETF and diversify your retirement funds. A good ETF like VTI will help you get diversified so all your eggs aren’t in one basket.

Estate Planning

As many people age, they want to simplify their estate. Selling mineral rights is often a way to clean up your estate planning and make dividing assets easier. As mineral rights get divided over time, they become more fractionalized and the value goes down. You will realize a higher price the more acreage you have to sell.

Real Estate Investment

Rather than own mineral owners where you have no control, many mineral owners opt to sell and buy real estate. When you have a rental property, you get to decide how to manage your investment. You also get the added benefit of leverage, which increases your returns.

Home Purchase

It is very common for mineral owners to sell mineral rights to help purchase a home. Coming up with a down payment is getting harder. Selling your mineral rights can give you the additional funds you need to secure a down payment for a home.

Start a Business

A lot of mineral owners we speak to want to start a business, but they need capital. Selling mineral rights is a way to raise capital to start your new business.

Health Reasons

If you need to qualify for Medicaid, you may be required to sell your mineral rights. You can only have a certain amount of assets to qualify for medicaid. Selling your mineral rights may help you qualify for Medicaid assistance.

Same Day Quote

After we receive your last 3 months of royalty statements, our team will put together a formal offer for you to consider. Your formal offer will be ready within 24 hours, and typically the same day you provide your documentation.

Sell Mineral Rights

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