A lot of people are into RE investment. Even I have some invested money in Real Estate.
The one thing I am always looking for is a better Return-On-Investment (ROI), or Cash-on-Cash if you prefer. All that means is that I want to make a little more money from my money. A Bigger Return on My Investment.
There are several ways to work this out. One is obviously using leverage to get the most out of your limited funds. Let's say you have $10,000 and use it as a downpayment for a $200.000 piece of rental property. Let's further assume that your mortgage, taxes, expenses, etc. for the property run you $2000 per month. Now don't get picky about my assumptions, I am not saying you can do this well or that you can't do better, I am just using these numbers as a example of the math.
OK, now we have a piece of rental property that we put $10,000, of our hard earned cash into, and it costs us a monthly expense of $2000 to keep it going. Let's make a further assumption that we can rent it for $2200 per month, and keep it rented, so that we can make a net profit of $200 per month, or $2400 per year. Now we are making $2400 a year on our initial investment of $10,000, or a 24% ROI. I know this is all simplified, but bear with me.
If you had this property in Tarrant county, Texas and owned the minerals and had them leased to a company that drilled a well and produced gas, you might make as much as $100-$200 per month on the mineral royalty. Now what I want you to get is that when you compare the mineral income, let's use $100 per month to be conservative, you are looking at improving your ROI for the deal by 50%. Your net income goes from $200 per month with the property rented to $300 per month with the property rented and the minerals in your possession. That's 50% using whatever math you want to use.
AND YOU GOT THIS EXTRA 50% BOOST IN ROI MERELY BY BEING FIRM IN YOUR NEGOTIATIONS, OR SMART, AND GETTING A FEE SIMPLE TITLE TO THE PROPERTY. REMEMBER, SILENCE IN A CONTRACT ALWAYS BENEFITS THE BUYER WHERE MINERAL INTEREST IS CONCERNED. IF THE SELLER DOESN'T SPECIFICALLY EXCLUDE IT, THEN THE BUYER GETS IT.
I don't know about you, but a property that has a 36% ROI on my initial $10,000 investment looks a lot better than one with ONLY a 24% ROI. Actually I would love a 24% ROI but I am using this as an example.
What it the cashflow was only $100 per month positive. What is the mineral interest worth then? As much, in net cashflow, as the property itself. And you can get the minerals for free in the deal if you know what you are doing.
Let me know what you think about getting minerals from now on. Why not, it is almost like free money.