1031 Exchange with Oil & Gas Royalties
While most real estate investors look to apartments or industrial buildings when executing a 1031 exchange, a sophisticated alternative exists beneath the surface: Oil and Gas Mineral Rights.
What are Mineral Rights Royalties?
A royalty interest is a right to a percentage of the revenue generated from the production of oil and gas on a specific property. When you own mineral rights, you own the sub-surface real estate from the "crust to the core".
The beauty of this investment lies in its simplicity for the owner. You are not the "operator." The energy company (the operator) is the one that assumes all drilling risks, pays all operating expenses, and deals with the liabilities. As the mineral owner, you simply receive a monthly royalty check, typically ranging from 15% to 25% of the gross revenue produced, free and clear of any operational costs.
How do mineral owners get paid?
Mineral Owners own an interest in the sub-surface real estate—everything from the crust to the core—and are entitled to compensation for everything that is produced from their land.
As energy companies drill wells and produce hydrocarbons, they are required to pay a royalty to the mineral owners. The energy company, known as the operator, pays all drilling and operating expenses and assumes all drilling risks and liabilities.
Mineral Owners receive monthly royalty checks from the companies operating on their properties. This payment is generally 15-25%** of the gross revenue produced from the property and is free and clear of any operational costs and drilling risks.
1031 EXCHANGE MARKETPLACE
Access Our Latest DST Listings For Your 1031 Exchange
Discover the potential benefits of investing in diversified portfolios of passive, institutional-quality real estate investments. Filter, sort, and analyze our available DST property investment listings.
Mineral Rights For 1031 Exchanges
The IRS classifies mineral rights and royalties as real property, making them "like-kind" to traditional real estate, such as rental houses, land, or commercial buildings. Because they are deeded and titled assets, you can exchange "out of" a traditional apartment building and "into" a portfolio of mineral rights to defer your capital gains taxes. Additionally, royalty income is entitled to a 15% tax depletion allowance, meaning that 15% of the income received is tax-sheltered.
Low distributions based on compressed capitalization rates have left many traditional real estate investors hungry for higher rates of return. Minerals & Royalties have the potential to experience an acceleration in cash flow caused by the drilling of additional wells by oil & gas operators.
Royalties & minerals provide an opportunity for investors to step away from traditional real estate and diversify into a different asset class with exposure to different economics.
Owners of undivided interests in royalty properties are not locked into an ownership structure that links them to other investors in the same property. Each owner is free to exercise control over holding period and exit strategy to suit individual investment objectives.
Private Royalty Ownership is a 1031-Exchange alternative that allows you customize your investment level. Whether you sell your property for $100,000 or $5,000,000, you can exchange the exact proceeds into oil and gas royalties.