Is it better to sell or lease mineral rights?
Mineral rights can be very valuable. If you own the subsurface of your property and suspect there may be valuable resources below, then extraction companies may be very interested in working with you.
When it comes time to sign an agreement to earn money from your mineral rights, there are two basic options you have: selling or leasing your mineral rights. In this article, we will explain the benefits of selling or leasing mineral rights to receive oil and gas royalties.
Sell Mineral Rights
Just like in any other property exchange, selling your mineral rights transfers the ownership of the items at stake completely. If you sell your mineral rights to a company looking to explore, drill, and sell minerals like oil and gas from your land, then you can expect a large cash sum. Selling mineral rights is the most simple form of a mineral rights exchange.
- When mineral rights are sold, the seller usually receives a large lump sum of cash or capitol.
- Payment is based on land, rather than minerals found.
- Mineral rights are considered an asset like real estate, so there are tax benefits associated with a 1031 exchange.
- Obviously, you are no longer the owner of your mineral rights, which could increase in value in the future.
- Depending on your contract, you are probably not able to benefit from the extraction and sale of oil and gas on your former property.
Lease Mineral Rights
Leasing mineral rights is an alternative in which a mineral rights owner retains ownership of the mineral rights, but signs into an agreement with an oil and gas company. A mineral rights lease is sort of like renting your property to someone who wants to dig for gold and share some with you. Mineral rights leases typically last about 3 to 5 years and are often negotiated if the operation is profitable.
- In a mineral rights lease, you retain total ownership of your mineral rights. After the lease has expired, you are free to renew your lease or sell it to another party.
- If the company who signs the lease is able to find and sell minerals on your property, then you will be entitled to a royalty interest based on a percentage outlined in your contract.
- Sometimes, no minerals are found. Although there may be a signing bonus, some oil and gas leases fail to earn mineral rights owners a single dollar.
- Once your property has been exhausted of its minerals, it will have very little value. Depending on the haul, you may find that you would have earned more money by selling your rights entirely.
Ultimately, the choice of whether to sell or lease your mineral rights is going to be an individual decision based on specific needs. If you are looking to earn a lot of money to help with retirement or to buy property, then selling your mineral rights may be your best option. If you suspect your property has a substantial about of oil, gas, or precious minerals, then leasing mineral rights could earn you a royalty check each month.