Why Mineral Investment For Your 1031 Exchange?
Anything valuable dug out of the earth is called a mineral. Mineral rights refer to the specific rights that authorize you to exploit an area for the minerals it harbors. In other words, owning mineral rights means the owner can exploit, mine, produce or sell any mineral that belongs to the piece of land. However, investing in mineral rights requires detailed knowledge about the pros and cons of mineral investment so that your 1031 exchange brings forth optimum profits.
As you may know, a 1031 exchange is the process of reinvesting the proceeds from the sale of either a business or an investment property into a like-kind investment. This is done by the owner of the mineral rights, with an aim to defer paying capital gains duty or tax. This post brings you different reasons for why investing in mineral rights for your 1031 exchange is fruitful and helpful.
First, and the foremost reason why you should choose mineral investment for your 1301 exchange, is that investing in mineral rights is legally backed up. This is because it is the most common like-kind option for a 1031 exchange. It is also established by law that mineral rights are real property; thus it is quite prudent to choose them for a hassle-free 1031 exchange.
Diverse Benefits and Utilities
Mineral rights are rights that provide long-term ownership benefits and advantages. People around the world prefer investing in mineral rights as compared to real estate investment owing to the great and dynamic perspective of that particular field. Mineral rights as assets provide significant cash inflows along with several assured benefits. Since there are a lot of minerals that a single plot of land can hold, the chances for you to gain profits is multiplied, and payment of this capital gain tax is deferred for a due course of time.
Mineral rights are quite flexible in nature. Regardless of what amount in replacement property you need for your 1031 exchange, professional firms can help you find the number of mineral acres necessary to fulfill your 1031 exchange requirements to the exact dollar. This makes the business dealings easy and convenient.
Dual Revenue System
Investing in mineral rights offers a perfect replacement for a 1031 exchange, because it offers a two-way income for the owner. First, the exploration and production company pays a lease to the owner, which often equals a juicy amount as a per acre bonus. Second, mineral ownership also generates a royalty payment, which is generally 25 percent of the total revenue from production.
Source of Passive Income
Passive income is commonly known as mailbox money. Investing in mineral rights is indeed a golden opportunity for a 1031 exchange, because it is an assured source gaining money from passive sources. In short, it gives you remuneration for just doing nothing.
Negligible Operational Cost
Profits for any business depend greatly upon statistics pertaining to operational costs, as these often take a fair amount of money and push down the profits. Apart from this, investing in mineral rights is a great choice for a 1031 exchange, because it is an excellent way to reap remarkable profits with almost zero operational cost. This means the owner of the mineral rights is expected to spend next to nothing as input in order to gain a fixed amount of money in the long run. This also helps in deferring the payment of the capital gain tax, which ultimately gives you more profits.