Momentary ramble

you made me laugh with real estate in Pecos or Midland. Good suggestions. Thanks

My friend AJ gave me this link that explains 1031 exchanges somewhat. It's of not much use to me because I have production on my acres and I'm not selling but it might help someone else.

http://realtormag.realtor.org/law-and-ethics/feature/article/2005/03/eight-1031-exchange-rules-you-cant-ignore

Wow, thanks RW. I’ve been approached a couple of times when I said I didn’t want to sell because of taxes, to consider a 1031 exchange, and I had a VERY vague idea how they worked. But this taught me a lot more. Thanks for contributing this article. Linton

Thank you Linton but as I said above AJ who is also a MRF member deserves the credit, I'm just reposting and passing it on.

I understand. Still, you rock for spreading the info, so I’m not letting you go unnoticed!!

You raise some excellent points and questions. If we are headed for a long term oversupply situation, it seems your question is whether you should try to time the market. Generally the value of minerals out here has been on a 100 year trend upward, with many up and down dips in between. So unless you need to sell to diversify assets or needing the money, I personally am pretty hesitant to bet against a 100 year track record and declare this the all time peak of the market. Technology advances continue to be the driving force here, and I am hesitant to bet it won’t continue. Also, even if we are headed for a long term oversupply situation, I would feel technology will continue to find new uses for oil. As they said in the Graduate, "plastics ".

Like many of us here I also have inherited minerals and was told "never to sell" but the generations before us never could have known what would come of oil and gas now, they could have never foreseen the shale revolution.

There is certainly something to be said for selling your minerals or at least a part of them at the high prices we are experiencing now. There is something to be said for guaranteed money in hand instead of hoping that over the next couple decades you can make that same amount back and hopefully more though royalty payments. There is lots of things that must go right for you to get that same amount back or more, lots of variables.

The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning power. Its a core principal of finance, money can earn interest and any amount of money is worth more the sooner it is received.

Sure you can think of your minerals earning "interest" by the royalty payments you receive, but again, that is not guaranteed. Taking the money you would get via selling and investing in the bond market would earn you more in the long run and it is also guaranteed return unlike those royalty payments. Sure you have to pay tax at the capital gains rate (15%) or you can do a 1031 exchange and buy some real property either way the math of selling tends to make sense.

I am not saying one way is right and one is wrong, I am just saying think long and hard if our grandfather's principle of "never sell" would uphold today given the shale revolution and the absorbent prices being paid for minerals.

-Cameron