The Differences Between Selling and Leasing Mineral Rights

The minerals in your properties are basically sleeping cash waiting to be tapped. But like most mineral rights owners, you have one question in mind before cashing in – should I sell or lease? There is no absolute answer to that question, because it will all depend on your financial needs and preferences.

Below are quick summaries of selling and leasing mineral rights, together with their advantages and disadvantages. From reading them, you can decide on your own which advantages you will like to have and which disadvantages you can tolerate.

Selling

Selling mineral rights happen when you outright transfer the mineral rights to their rightful buyers.

Advantages

The most obvious advantage of selling something is that you get easy money out of it, and mineral rights is no exception to this. Not only that, the easy money you get is also a considerable amount. To sum it up – it’s fast and big cash. It’s fast because these resources are in demand. It’s valued high because these resources are finite.

This lump sum can be a good way to finally start that business you dream of or secure your financial future through investing and getting financial plans, like retirement plans, pensions, and other securities.

Disadvantages

If you get big cash, the most obvious disadvantage is that you will also pay big taxes. That is just one of the inevitabilities in the world, unless you want to be chased by the government. Another disadvantage is the chance that leasing can actually result into bigger profits.

Leasing

Leasing mineral rights occur when you still retain mineral rights but allow an entity to extract your minerals, in exchange of lease fees and royalties.

Advantages

You have more control on your minerals if you lease them, because you can establish contracts with the entity who wants to lease, to determine lease fees, percentage of royalties, and the lease period. In the right conditions, you can get more money in leasing than selling mineral rights outright.

Also, to many individuals, a constant stream of income is a more attractive financial option than an instant lump sum.

Disadvantages

Since a lease runs over time, you are open to risks, such as fluctuating market values of minerals. This is particularly true today, because of the rise of alternatives and renewable resources that are more sustainable, efficient, and economical. So, while there is a chance that you can get more in leasing than selling, there is also a chance that you will get way less.

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