Oil & Gas to Optimize Real Estate Returns?

Question

Anyone out there using cashflow oil & gas investments to optimize their real estate portfolio?

Would love to hear how it is/is not working for you.

Thanks!

John Collins · Answer

Bill - Thank you for the response, I appreciate your perspective.

Following up nearly a year later now and in the midst of an oil slump, I thought I would share what I've experienced with direct participation oil & gas limited partnerships...a real estate play of sorts.

These have been my most passive, steady form of cashflow since late 2011, early 2012. Also, this type of O&G investment is the most highly tax-advantaged asset class, even more so than real estate.

Another discovery was that it's nice to have a steady stream of O&G cashflow in my portfolio to cover the inevitable hiccups with real estate (single family homes), including turnover vacancy, unexpected repairs/maintenance, etc.

For me, the O&G has been a stronger cashflow asset out of the gate, with expected decline as production wanes over the long term.

My real estate was slow and choppy over the same timeframe, but I expect it to far exceed the O&G returns over the long haul through leveraged appreciation and increased cashflow.

So, I think acquiring both real estate and O&G at the same time is a nice way to diversify cashflow since one favors higher cashflow and performance early but depletes over time, while the other starts slow but will be a rocketship over the long term.

Last, since both asset classes produce passive income/losses, one can strategically shelter passive income to optimize their portfolio returns.

Bringing it to the present, the recent crash in oil prices will certainly hurt short term distributions, but similar to when real estate crashes, there are plenty of great deals to be had for those who have cash on the sideline and can buy in for the ride back up when prices recover.

I'm surprised there are not more people talking about or considering cashflow O&G on this forum.

Best,

jc

Bill Gulley · Answer

John, in your neck of the woods you can have active wells producing. I've found over the years that gas or oil in OK and TX are often capped sometimes for years depending on demand and costs or production is limited and royalties aren't what is usually expected, you're not in control but hey, some can be nice. Seems there was a craz in the 60s and 70s in splitting leases with fractional owners, I'd not go there. There are also some lease scams going as well, an old lady in Dallas buys oil rights just before RE closings and the buyer thinks they get them, there's a suit going now as title insurance doesn't insure mineral rights in TX according to the attorney. IMO, nothing to bet on, it's a speculative business. :)