How many times can one say that their greatest investment was buried in the ground? When you invest in mineral rights, you are investing in an economy that has a great need for raw materials. Mineral rights refer to the right to mine or drill for the minerals, as defined per the state, in the ground, beneath a property. If you decide to invest in mineral rights, you should understand both the risks and the rewards as a result of it.
Risks of Investing in Mineral Rights
As an investor, you must be ready to consider systematic and unsystematic risks. Systematic risk is defined as, “risk inherent to the entire market or an entire market segment” (Investopedia.com, 2014). These risks associated with mineral rights specifically include the gas markets, drilling costs, and the prices of oil. Unsystematic risks, on the contrary, are risks associated with specific assets. For example, the mineral rights title, the activity around the property area, and the competence of group hired to completing the drilling or mining.
Reasons to Invest in Mineral Rights
When you invest in mineral rights, a good place to start would be assessing your risks and comparing them to your expected ROI. With that being said, there are more reasons to invest than there are not to.
1. Raw materials are a commodity that will never go unneeded. At any given moment, a manufacturer or supplier is ready to purchase minerals.
2. You can purchase mineral rights even if someone else owns the property, adding to ease and lessening the legal headache.
3. Investors can gain passive income from their investment. They only hire mining or drilling companies to facilitate the labor, and a portion of that profit will return to you for as long as the mineral rights property produces.
4. There is low market risk for properties that produce oil and gas, especially because as a the price of oil and gas increases, so does the investor’s ROI.
5. There is no risk involved with costs for oil and gas discovery. When you invest in mineral rights for a property with known oil and gas, and you can also invest in royalties as a result of the production.
Are You Ready to Invest in Mineral Rights?
One important thought to take into consideration is that mineral rights may be too abstract of a concept for many to think about. When considering the risks and returns on this type of investment, try to think of it as “investing in minerals.”
What do you think the ROI on investing in oil and gas is? In gold? In coal or peat? Think of your investment in terms of the material harvested, and the profit you can gain from selling to an economy that will always need raw materials?
Learn more about your options today by contacting a mineral rights investment professional at H&M Land and Mineral.
