Why You Should Invest In Mineral Rights

In inflationary environments, investors often turn to hard assets that are likely to rise in value. Hard assets hold value through most economic cycles and, over extended periods of time, their returns often align with inflation. To illustrate, as prices rise, so does the value of hard assets, and so do returns on hard assets. One category of hard asset investing that tends to fly under the radar, but allows you to benefit from rising commodity prices is investing in mineral rights.

Unlike paper assets, some hard asset classes (i.e. mineral rights and real estate) have historically been viewed as great hedges against inflation. These assets can help your investment portfolio thrive even during inflationary climates. Another noteworthy advantage is you can achieve diversification which will help to minimize volatility and generate consistent returns.

By investing in mineral rights to valuable natural resources, such as oil, natural gas, and coal, you can implement effective passive investment strategies that have the potential to generate great returns and monthly cash flow.

What Are Mineral Rights?

Mineral rights grant physical and legal ownership of the minerals that lie beneath the surface of a set area of land. This parcel of land is most often referred to as net mineral acres(NMA). These mineral rights essentially give control over the minerals beneath the surface of the ground to the owner of the rights.

Some of the minerals found under the ground include natural gas, oil, precious metals, and coal. There are other rights (like air and water) that can be purchased that are out of the purview of this discussion.

Although it is possible to have mineral rights included when you purchase a piece of real estate, it’s actually fairly common in the U.S. to see properties with severed mineral rights. In other words, a specific parcel of land could potentially have two different owners: one with ownership of the surface rights and one with ownership of the minerals that lie beneath the surface. 

This is because previous property owners either sold their mineral rights but retained their surface rights or vice versa. Therefore, whenever you are in the process of purchasing a property, it’s always a good idea to check into who owns the mineral rights to help avoid future dilemmas. 

How To Profit From Mineral Rights

Mineral rights owners have the authority to explore and extract minerals that lie beneath the surface of their real estate property. However, the process of mining minerals from the ground is very expensive and requires a significant amount of time, expertise, and machinery to properly carry out the entire operation.

As a result, one of the most efficient ways to profit from mineral rights, as an investor, is to lease the rights to a reputable company that has the ability to run a profitable mining operation.  As compensation, mineral rights owners receive royalties from the operators for their share of the minerals extracted on the property. In other words, you would receive royalties and lease payments as monthly cash flow. 

There is residual value in the land as well. As methods of operation become more sophisticated and mining companies are able to extract more effectively and efficiently, the residual value of the land remains strong because they will likely be able to extract more natural resources at a later time.

Why Invest In Mineral Rights

One of the great things about investing in mineral rights is that it’s a 100% passive investment strategy. There are zero liability concerns while you are able to consistently generate monthly cash flow. With companies becoming more sophisticated with their methods of extraction, it’s possible to have a virtually endless supply of minerals.  

On a personal note, I have experienced cash-on-cash returns with mineral rights investments that are more than double what I have seen from most apartment syndications.

After you’ve benefited from consistent monthly cash flow, you can leverage the residual value of the land and sell those to another investor. This residual value can, at times, double or triple what you originally paid for it depending on what time you decide to sell.

Taking Your Next Steps To Financial Freedom

As you start to look into mineral rights investments, I recommend aligning yourself with operators that have a proven track record in the space. A few key things to look for in an operator include a history of great returns, years of experience, knowledge in the space, and trustworthiness.

However, before you begin investing in mineral rights, it’s very important to do your due diligence. For instance, there are a ton of oil and gas companies out there. With proper due diligence, you can ensure you are aligned with an established company you can trust and has a proven history of generating excellent returns. 

Investing in mineral rights can provide you with not only consistent monthly cash flow and equity appreciation but also a hedge against inflation. With oil and gas at historically high prices, now is a very good time to investigate mineral rights.

With these types of hard assets, you can truly add value and boost your investment portfolio. When done in the correct manner, investing in mineral rights is an excellent investment opportunity that provides you with continuous benefits, especially in the inflationary environments we are currently experiencing. 

If you’re interested in learning more about how you can benefit from investing in mineral rights or any number of other investment strategies, click here to schedule a free 30-minute call with me.

Together, we’ll take the next steps toward starting your path toward achieving your financial goals and winning back your time!

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