Department of Labor’s association health plan rule is a good step but eligible “working owners” should include people who get insurance through their spouse, NAR says. NAR supports the Senate banking bill because it’s expected to open up more home lending to households. And there could be some opportunities for real estate pros if the infrastructure plan moves forward. NAR is seeking permanent extension of a tax break for homeowners who’ve had mortgage debt forgiven. A Realtor spoke at a Capitol Hill roundtable on why flood insurance must be reauthorized and reformed for the long-term. And a cyber security expert explains how agents can protect themselves from scams.
By: (NAR)
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Archives for March 2018
Breaking Down Mineral Rights
Mineral rights are so complex that most of the time, people would instead hire a lawyer to deal with them. The bad news is, there is a lot of truth in that statement. Mineral rights can be tied up in tricky deeds going back generations. The good news? We’ve collected the most commonly asked questions about mineral rights to help you get a better understanding of one of the most complex issues in the land industry.
Q: What exactly are mineral rights?
A: Mineral rights are the legal rights to the minerals in a property. Whoever owns a property’s mineral rights has full legal rights to mine for and profit from those minerals.
Q: What kind of minerals are included in the term “mineral rights“?
A: There are lots of minerals that you can make a profit off if you own mineral rights. These include oil/natural gas, coal, precious metals (gold/silver), non-precious or semi-precious metals (copper or iron), and specialty earth elements like uranium.
Q: What minerals do I NOT have access to?
A: This is where mineral rights can get tricky. Sand, gravel, limestone, and subsurface water are all not covered by most mineral rights. These elements are typically considered part of the surface area of a property. Whoever owns the surface rights also owns the rights to the sand and limestone.
There have been many legal battles over what counts as a mineral. Here are just a few examples. To keep your mineral rights out of the courtroom, be sure to be explicitly clear with whoever you are buying or selling your rights to.
Q: Are mineral rights profitable?
A: Yes, but not as profitable as you might think. Private mineral rights owners received an estimated $22 billion in 2013. The government also makes a pretty penny off of mineral rights. In 2016, the U.S. government received roughly $2 billion in mineral productions (which includes oil, gas, and coal) on federal land.
However, the growing number of legal battles between states and landowners over mineral rights is starting to rack up a hefty tab. In some cases, the price of the lawyers and time in court can drain more money than the mineral rights are worth.
If the minerals in your land are oil or coal, you are competing with solar and wind energy. The rise in renewable energy sources also has the potential to lower the value of the oil or coal in your land.
Q: What are the most common ways that mineral rights are held?
There are three common ways that mineral rights are held. The first and most common is a unified estate. In unified estates, the mineral and surface rights are held together, so whoever owns the deed to the property owns both mineral and surface rights. A severed or split estate means that the mineral ownership is sold separately from surface ownership. In this case, whoever owns the surface rights does not own the mineral rights. The last type of estate is fractional. As the name implies, fractional estate is when you receive a portion of the mineral rights. Fractional estates are often used for inheritances, so that each heir can split up the profits equally.
Q: How do I know how much my mineral rights are worth?
Finding out how much your mineral rights are worth can be difficult. The value of mineral rights can vary day-by-day, because the market value of minerals is determined by calculating how much buyers would pay for mineral rights today. There’s no easy way to calculate how much your minerals rights are worth. One of the best ways of knowing the current value is to list mineral rights for sale and see how much people are willing to buy them for. You can also list them on US Mineral Exchange.
Q: Will mineral rights increase my taxes?
Yes – if you are currently making a profit on those minerals. Unexercised mineral rights (if you are not currently making money from the mineral rights) are not taxed. If you sell those rights, you have to pay taxes on the proceeds. Income made from the minerals is taxable income. But having valuable minerals and oil on your land can also increase your property value, which will be helpful when it comes time to sell.
Q: What are common mistakes people make when selling their mineral rights?
One is accepting the first offer on mineral rights. Don’t accept the first offer you get. Offers are the best way to gauge the price of mineral rights, so wait until you have a few offers to figure out what your mineral rights are worth and the best price for them. Mineral rights can be incredibly valuable, so take your time finding the best buyer. Another mistake is listening to rumors. Many people think the best way to figure out the value of their mineral rights is by asking their neighbors about their mineral rights and assuming yours will be similar. DO NOT DO THIS. The minerals in land range wildly from property to property.
Q: Can I buy the mineral rights to a property that isn’t mine?
A: Yes! This is becoming more common as the value of oil and minerals goes up. You need a real estate deed that details the mineral rights as well as proof of ownership of the mineral rights, a warranty deed, and legal documents. Learn more about buying mineral rights here.
Although we have covered a fair amount in this article, it still only scratches the surface of everything there is to know about mineral rights. Mineral rights are complex, but understanding the basics is a huge step forward to becoming a mineral rights expert.
By: Laura Barker (RLI)
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New Supply, Airbnb Could Finally Hurt Hotel Loan Performance
So far all of the new supply entering the market, as well as Airbnb, has not had an impact on properties backing CMBS loans, Trepp says. That may change this year.
The overall CMBS delinquency rate has been on a steady decline for several months — and it is expected this will continue — but individual asset classes have their own story to tell. The hotel sector, for example, has been dealing with both a rapid growth in rooms in recent years and the disrupting effect Airbnb has had on the industry. Neither has had an effect on loan performance to date. Indeed, the delinquency rate for the lodging sector has been consistently lower than the overall CMBS delinquency rate for the last few years, according to Trepp.
This may change however, according to a new report by Trepp, which says that with 10,000 new rooms expected to come online this year — the largests annual volume since 2009 — the hotel delinquency rate will be “worth watching.”
The Airbnb Threat
Not only will the large volume of new supply eventually pressure occupancy growth, but Trepp also expects rising competition from Airbnb will slow demand growth. Both trends will weigh down the sector, albeit not as much as one might expect. Trepp writes:
While new supply is expected to cause a year-over-year decline in occupancy, these declines will likely be very modest at less than 1.0%.
It is Airbnb that is the wild card. Even though it hasn’t affected CMBS loan performance, it has clearly had an impact on the hotel sector. Trepp points to a Forbes study from 2014 that showed that the 10 US cities with the largest Airbnb market share have reported 1.3% fewer hotel nights booked, 3.7% less in variable profits and 1.5% losses in hotel revenue since the entry of Airbnb. Trepp writes:
Airbnb continues to revolution the lodging market and keep room prices in check, making additional rooms available in popular travel spots during peak season.
It advises investors to scrutinize the US hotel industry on a market-by-market basis and monitor Airbnb’s presence as well as the concentration of market supply.
By: Erika Morphy (Globe St)
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New Mexico Oil Production Gushes to All-Time Record
New Mexico oil production is booming at levels never before seen in state history, pushing output last year to an all-time record of 171 million barrels, according to the latest statistics from the state Oil Conservation Division.
That’s more than double the 85 million barrels the state produced in 2011, when modern drilling technology began pumping new life into the aging Permian Basin in southeastern New Mexico and West Texas. Output last year climbed 17 percent over 2016, when the state produced 146 million barrels.
The boom reflects massive investments in the New Mexico side of Permian, where huge companies like ExxonMobil are sinking billions of dollars into new drilling and exploration, said New Mexico Oil and Gas Association Executive Director Ryan Flynn.
“2017 was a record-breaking year because of the prolific growth and potential producers are seeing in the Permian Basin,” Flynn said. “Last year, oil and natural gas producers invested more than $13 billion in New Mexico, and these investments are clearly beginning to have an overwhelmingly positive impact.”
Many things are fueling today’s gushers. Foremost are hydraulic fracturing and horizontal drilling, which have opened up oil deposits trapped in the basin’s hard shale-rock formations, combined with particularly lucrative pools of hydrocarbons crammed into strategic locations in southeast New Mexico.
That includes the Delaware Basin, an oval-shaped rock formation within the Permian that protrudes from southwest Texas northward into Lea and Eddy counties. That area has become one of the country’s most prolific oil and gas zones, producing some of the highest returns for oil firms operating in the United States.
That’s made New Mexico the third-largest oil-producing state in the nation today, surpassed only by Texas and North Dakota. It’s also turned the Permian into one of the world’s premium growth basins, rivaling traditional producers in the Middle East and elsewhere.
The U.S. Energy Information Administration predicts the Permian will soon become one of the world’s top oil assets, with 80 percent of new global demand being met by American production, predominantly from the Permian, Flynn said.
“New Mexico is literally positioned to be a global leader in energy production,” Flynn said. “That’s what the numbers all point to.”
The Permian kept producing even during the recent global industry bust, which pushed world prices down from about $100 per barrel in 2014 to just $28 by early 2016. New Mexico’s output continued to climb throughout the downturn. Production reached 147 million barrels in 2015, which at that time was an all-time high that surpassed the peak production levels reached in the early 1970s.
Prices have since climbed back above $60 per barrel, thanks to production cutbacks by members of the Organization of Petroleum Exporting Countries, plus rising global demand, which is helping reduce world oversupply. That bodes well for New Mexico.
“We can expect this record-breaking production will become the norm for the next several years,” Flynn said. “The Permian Basin is becoming the epicenter of global production now, and that’s great news for New Mexico.”
Rising prices and production have pulled New Mexico out of its budget crisis, which led to harsh cuts in state spending in recent years. During the recent legislative session, the Legislative Finance Committee projected $292 million in “new money” for the new fiscal year, largely from increased oil and gas revenue.
That allowed the state to replenish its depleted reserves, tucking 10 percent of revenue away for unforeseen shortfalls during the new year.
Still, LFC Vice Chair Sen. John Arthur Smith, D-Deming, said the state should use the new-found oil boom to raise reserves to 20 percent to prepare for future busts.
“We’re still on a feast-or-famine feed cycle,” Smith said. “We need to take advantage of the current revenue stream to mitigate the hills and valleys.”
By: Kevin Robinson-Avila (ABQ Journal)
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