Why would you sell your royalties?
The Case for Selling Mineral Rights
There is a large following of people who would tell you that you should never sell mineral rights. It’s important to understand that selling mineral rights depends on your personal situation. The decision to sell mineral rights ultimately comes down to whether you have a financial need to sell or you simply don’t want to wait for drilling to occur. Here are some of the benefits of selling mineral rights, which are also some of the most common reasons people decide to sell mineral rights:
- Timing: Many mineral owners sell mineral rights simply because they don’t want to wait years to see if any drilling occurs. The process of leasing your mineral rights and then waiting for drilling to occur can take a minimum of 5+ years and that’s if things are going quickly. If you don’t want to hold onto the property for 10+ years to see what happens selling mineral rights make sense.
- Gamble: Holding onto your mineral rights can be a gamble. Some people hold onto their property for literally decades and nothing ever happens even after they have been leased multiple times. There is no assurance any drilling will take place even after you are leased. In addition, the value of the royalties could turn out to be less than expected. You could spend years waiting for drilling to occur and it either never happens or produces very small royalties.
- Retirement: A lot of mineral owners choose to sell during retirement. Owning non-producing mineral rights doesn’t produce any income unless you are leased. Many retirees decide to sell to avoid paying taxes each year and to put some cash in the bank. In addition, the sale of mineral rights converts the property into cash which makes estate planning significantly easier.
- Financial Need: There are many individuals who find themselves in a financial situation where they need to sell. They might be losing their home or have unforeseen medical bills comes up. Regardless of the reason, selling mineral rights to meet this short term obligation is never a bad decision. Losing your home and letting your credit score go down the toilet doesn’t make sense if you own mineral rights. It’s better to sell mineral rights and help meet that need. If your considering whether to withdrawal some 401K funds or sell mineral rights, selling mineral rights is a much better option from a tax perspective.
Your personal decision
Deciding whether to sell mineral rights or hold onto them is a difficult question. If you find yourself conflicted over whether to sell mineral rights or hold onto them, remember that it’s your decision. Every person has unique things going on in their life. Every person has to make the decision that will best benefit their family. Holding onto a property that may never get leased or drilled on during your life time doesn’t make sense if you can sell it and use that cash today.