A great choice for small investors is to buy oil and gas royalties. Returns can be amazing – anywhere from 12% to 30%. Another reason for their popularity with small investors is because with financial backing and some basic knowledge, it is possible for individuals to get started by themselves. If you are interested in learning how to buy oil and gas royalties, than this article is for you. For the sake of simplicity, we are going to assume that you have already acquired or have access to the needed funds, have established a legal entity with which to buy them, and that you have consulted a legal professional with royalty experience.
There are six steps that you must go through in order to buy oil and gas royalties, and they are as follows:
Find Sellers of Royalties
This is not as difficult as it may appear. Numerous trade magazines have classifieds where sellers can list their royalties for sale, or where those looking to buy oil and gas royalties can state their requirements. Also think about contacting oil and gas acquisition companies. They sell royalties all the time to those looking for almost zero-risk investments.
Make an Offer
Three ways exist to go about making an offer to buy oil and gas royalties. You can choose to send a letter that gives no actual offer, but states your interest in their royalty holdings. You can send a letter and offer that includes a bank draft with it. Or, you can send the letter and offer without funds included.
Reel in the Fish
When you get return phone calls from owners you have sent letters to, get back to them right away. There could be others who are interested in their royalties so time is of the essence. Make sure they understand you are serious about doing business with them and that closing will be easy and expedited. When it comes to the length of the buyout term, let them make the first offer.
It is vital that you independently confirm that they actually own the royalties. Go by more than just their word! Have them fax you the stubs from the last several months, or visit your local courthouse to access their public information deeds and records.
Send Out the Paperwork
Get the paperwork to the seller as quickly as possible. Touch base after 24 hours to make sure that it was received and has been signed.
Pay and File
Once the signed papers are in the hands of you or your attorney, release the funds to the seller. Bring all of the required documents to the courthouse and have them filed. Contact the company who is responsible for paying the royalty and anticipate a delay of about three months before you start to receive the checks.
Once you have learned how to buy oil and gas royalties, the process will be simpler the next time. You will know what to look for and how to make the perfect sales pitch.