What Are the Advantages of Owning Mineral Rights?

By Ross Haley | Eckard Enterprises

If you’ve investigated options for owning alternative assets, you might have heard that directly owning mineral rights can offer several advantages for qualified individuals. This royalty-generating asset class offers exceptional benefits in comparison to other traditional asset classes, such as stock market returns or real estate. 

Here are just a few of the key benefits of mineral rights ownership:

Monthly Income
One of the main advantages of owning mineral rights is income through monthly royalty payments. Mineral rights entitle the owner to receive a share of the profits from the extraction and sale of minerals from a particular property or area. As a mineral owner, you are paid first before anyone else in the oil & gas payment deck. These royalties are distributed in the form of monthly checks, a great source of steady, ongoing income for the owner that is not burdened with the need for active management or participation in the mining or drilling process.

A combination of lack of overhead exposure, zero liability, and regular cash payments makes mineral rights a highly desirable asset.

Inflation Hedge
The value of minerals, such as oil and natural gas, tends to increase over time due to a myriad of factors including supply, inflation, and increasing demand. This can result in a corresponding increase in the income generated by mineral rights and mineral royalties. These factors can make assets connected to the larger energy sector a great choice for those seeking to protect their wealth from inflation. 

Long-Term Value
Many mineral rights and royalty agreements have a long lifespan lasting for decades. At Eckard Enterprises, our team searches for only the best of the best tier 1 and tier 2 minerals for those individuals who qualify and are interested in direct ownership. When these individuals directly own these royalty-producing assets, they own those minerals outright and can pass those rights down to the next generation.

This arrangement can make minerals attractive for those looking to generate consistent, long-term income for decades to come.

Eligible for 1031 Tax Exchanges

A Section 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, is a tax strategy that allows you to defer paying capital gains taxes when you sell one investment property and use the proceeds to buy another similar property. The primary benefit of a 1031 exchange is the ability to defer taxes on the sale of real estate, which can be particularly beneficial for real estate investors looking to reinvest without taking a significant tax hit. 

This tax-deferred exchange applies to like-kind properties, meaning that the property you sell must be of the same nature or character as the property you purchase. The tax deferral is a powerful tool for growing your investment portfolio because it allows you to use all of your equity for reinvestment rather than immediately paying capital gains taxes on the gains. Mineral rights are eligible for 1031 exchanges as a like-kind property, which can provide the perfect opportunity to seamlessly transition into this asset class while deferring taxes.  

Conclusion

These are just a few of the many benefits associated with owning mineral rights. Eckard Enterprises has 40 years of experience helping qualified individuals own royalty-generating energy assets such as mineral rights, which we believe are some of the most valuable long-term assets available. Reach out to one of our experts at [email protected] or (800) 527-8895 to learn more!