Sell mineral rights landlords are often worried to sell their ownership. Sells seems to be pretty tempting as it is considered by several to be a steady income-generating opportunity. But, in actuality, leasing is not as straightforward and beneficial as it is perceived.
Below are six common potential risks when selling mineral rights:
1. Unsteady Royalty Payments
A royalty payment is the compensation received by the mineral rights owner in return for giving the mining company the right to extract oil and gas from his property. Mineral Rights
2. Risk of Depleting Assets
It is very difficult to predict the producing life of a well. Sometimes a newly drilled well which produces a substantial amount may suddenly stop producing and become depleted.
3. Negative Impact on Property's Value
One of the biggest drawbacks of leasing is not knowing the right terms and clauses to include in a lease. This can potentially greatly decrease your income on a property. If you sign a lease but leave in negative or operator friendly lease language you can impact the overall property value. Sell Oil Rights
4. Complicated Legal Procedures
Once two parties agree on the mineral rights lease, both parties have to sign an agreement which is generally prepared and drafted by the leasing company. All legal procedures and documentation with regard to leasing is complicated and can lead to disputes and disagreements during the extraction and production.
5. Heavy Tax Burdens
While most income from a mineral rights sale is taxed at 15% (Capital Gains), the income from royalty and bonus payments from a lease payment is charged for ordinary income rates which can be very high! (Check with your tax professional). It is usually very beneficial to sell the mineral rights over leasing them due to the much lower potential tax rate of the income and sale.
6. Accounting Hassles
Receiving a royalty payment may seem exciting, but the accounting and records maintenance is a challenging task. One has to monitor the drilling process, payment process and pending payments. In addition and more importantly, in order to check the accuracy of the accounting, professional audits will be necessary. Sell Gas Rights