Why Selling Mineral Rights is Less Risky Than Leasing

» Posted by on Jul 15, 2017 in Mineral Rights | 0 comments

For a lot of mineral rights owners, selling mineral rights is the more financially viable option when compared to leasing. Of course, they are not just blindly looking at the advantages of selling over leasing. They have looked at both advantages and disadvantages of either and have determined that selling is better.

But is it true? There is no right answer to that question. Leasing can also be more viable on the right conditions. Choosing between selling and leasing will depend on your financial situation and goal. However, it can be argued that selling is less risky than leasing, so maybe that is the reason why many mineral rights owners choose it.

Disconnection

The good thing about selling is that you are disconnecting yourself from the responsibility over the minerals, because you are completely selling them to a third party. It is like selling any other object – it is not your business anymore after the transaction. This means that you are no longer a player in the mineral game, which gives you the inherent advantage of not being vulnerable to the possible risks of being in the game.

Time Equals Risk

On the contrary, leasing puts you in the middle of the mineral game. Depending on the contracts, you may be in it for years, and maybe even decades. The span of time alone may put you in numerous financial risks. First, the passage of time may make the value of your minerals decrease, resulting into less royalties. This is not farfetched either, considering that the rise of renewable resources has already begun. Second, the passage of time may make your property less productive. This means that the company will extract less minerals and you will get less royalties.

Leasing may give you more cash in the long run compared to selling, but you have to take note of these two risks because leasing may also give you less cash if they happen. That is the beauty of selling. You get to get paid in a lump sum and get done with it, without thinking about these risks.

Not Without Risk

However, selling mineral rights is not without risk. According to the website of The Mineral Auction, some of the problems you can encounter in selling are low ballers who will try to buy in an incredibly low price and flippers who will try to buy below market value so they can sell it to someone else.

In other words, both selling and leasing have their own risks. It is just a matter of preference of which risks are you willing to tolerate. If done right, selling and leasing can make you a fortune.

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