Multi-Family Real Estate & Oil, Gas, Energy Assets
Why Do Investors Choose Oil & Gas?
The Main Benefits of Investing in Oil & Gas Include:
Intangible Drilling Costs: These include everything but the actual drilling equipment. Labor, chemicals, mud, grease, and other miscellaneous items necessary for drilling are considered intangible. These expenses generally constitute 65%-80% of the total cost of drilling a well and are 100% deductible in the year incurred.
For example, if it costs $300,000 to drill a well, and if it was determined that 75% of that cost would be considered intangible, the investor would receive a current deduction of $225,000. Furthermore, it doesn't matter whether the well actually produces or even strikes oil. As long as it starts to operate by March 31 of the following year, the deductions will be allowed.
Intangible Drilling Costs: These include everything but the actual drilling equipment. Labor, chemicals, mud, grease, and other miscellaneous items necessary for drilling are considered intangible. These expenses generally constitute 65%-80% of the total cost of drilling a well and are 100% deductible in the year incurred.
For example, if it costs $300,000 to drill a well, and if it was determined that 75% of that cost would be considered intangible, the investor would receive a current deduction of $225,000. Furthermore, it doesn't matter whether the well actually produces or even strikes oil. As long as it starts to operate by March 31 of the following year, the deductions will be allowed.
Tangible Drilling Costs: Tangible costs pertain to the actual direct cost of the drilling equipment. These expenses are also 100% deductible but must be depreciated over seven years. Therefore, in the example above, the remaining $75,000 could be written off according to a seven-year schedule.
Active vs. Passive Income: The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against other forms of income such as wages, interest, and capital gains.
Small Producer Tax Exemptions: This is perhaps the most enticing tax break for small producers and investors. This incentive, which is commonly known as the "depletion allowance," excludes from taxation 15% of all gross income from oil and gas wells. This special advantage is limited solely to small companies and investors. Any company that produces or refines more than 50,000 barrels of oil per day is ineligible. Entities that own more than 1,000 barrels of oil per day, or 6 million cubic feet of gas per day, are excluded as well.
Lease Costs: These include the purchase of lease and mineral rights, lease operating costs and all administrative, legal, and accounting expenses. These expenses must be capitalized and deducted over the life of the lease via the depletion allowance.
Alternative Minimum Tax: All excess intangible drilling costs have been specifically exempted as a "preference item" on the alternative minimum tax return.
Developing Energy Infrastructure: This list of tax breaks effectively illustrates how serious the U.S. government is about developing the domestic energy infrastructure. Perhaps most telling is the fact that there are no income or net worth limitations of any kind for any of them other than what is listed above (i.e. the small producer limit).
Active vs. Passive Income: The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against other forms of income such as wages, interest, and capital gains.
Small Producer Tax Exemptions: This is perhaps the most enticing tax break for small producers and investors. This incentive, which is commonly known as the "depletion allowance," excludes from taxation 15% of all gross income from oil and gas wells. This special advantage is limited solely to small companies and investors. Any company that produces or refines more than 50,000 barrels of oil per day is ineligible. Entities that own more than 1,000 barrels of oil per day, or 6 million cubic feet of gas per day, are excluded as well.
Lease Costs: These include the purchase of lease and mineral rights, lease operating costs and all administrative, legal, and accounting expenses. These expenses must be capitalized and deducted over the life of the lease via the depletion allowance.
Alternative Minimum Tax: All excess intangible drilling costs have been specifically exempted as a "preference item" on the alternative minimum tax return.
Developing Energy Infrastructure: This list of tax breaks effectively illustrates how serious the U.S. government is about developing the domestic energy infrastructure. Perhaps most telling is the fact that there are no income or net worth limitations of any kind for any of them other than what is listed above (i.e. the small producer limit).
What Are the Risks?
Risks of Oil and Gas Drilling: The search for oil and gas involves a high degree of risk. It is blemished by unprofitable efforts, not only form dry holes, but also from wells thought to be productive that do not produce oil and gas in sufficient quantities to return a profit. Oil and gas reserves, when found, must be sold into an ever- changing market that could also prevent the return of the investment.
An investor must be an individual, partnership, or corporation who can bear the economic risk of the investment and are financially able to afford any and all losses that might occur.
Few Drilling Risk:
An investor must be an individual, partnership, or corporation who can bear the economic risk of the investment and are financially able to afford any and all losses that might occur.
Few Drilling Risk:
- Stuck drill pipe or casing that cannot be removed.
- Lost circulation that prohibits the well from being drilled to sufficient depth.
- Drilling bits, logging tools, etc., that could accidentally be lost in the whole preventing further drilling or completion.
- Blowouts or fires that could make a well hazardous.
- Formation damage caused by drilling fluids.
- Channeling of treatment into an uncontrollable water zone.
- Equipment malfunction which could cause the cement to set-up in the wrong place.
- Hole collapse, parting of the casing, and other down hole problems that could prevent production.
Why Do Investors Choose Multi-Family Real Estate?
Investing in Multi-Family Properties
Rental property investing is the preferred investment strategy for investors who want an additional source of monthly income along with a slow but steady appreciation in the value of their portfolio. When it comes to residential real estate, there are two main types of properties that one can invest in: single-family and multi-family.
Here are three reasons to consider investing in multi-family real estate as opposed to single-unit rental properties.
They May Be More Expensive, But They Are Easier To Finance
At first sight, it might seem as though securing a loan for a single-family property would be a lot easier than trying to raise money for a million-dollar complex, but the truth is that a multi-family property is more likely to be approved by a bank for a loan than the average home.
That’s because multi-family real estate consistently generates a strong cash flow every month. This remains the case even if a property has a handful of vacancies or a couple of tenants who are late with their rent payments. If a tenant, for example, moves out of a single-family home, that property would become 100% vacant.
On the other hand, a ten-unit property with one vacancy would only be 10% unoccupied. As a result, the likelihood of a foreclosure on an apartment building is not as high as a single-family rental. All of this equates to a less risky investment for a lending institution and can also result in a more competitive interest rate for the property owner.
That’s because multi-family real estate consistently generates a strong cash flow every month. This remains the case even if a property has a handful of vacancies or a couple of tenants who are late with their rent payments. If a tenant, for example, moves out of a single-family home, that property would become 100% vacant.
On the other hand, a ten-unit property with one vacancy would only be 10% unoccupied. As a result, the likelihood of a foreclosure on an apartment building is not as high as a single-family rental. All of this equates to a less risky investment for a lending institution and can also result in a more competitive interest rate for the property owner.
Growing a Portfolio Takes Less Time
Multi-family real estate is also very suitable for property investors who wish to build a relatively large portfolio of rental units. Acquiring a 20 unit apartment building is a lot easier and much more time-efficient than purchasing 20 different single-family homes.
With the latter option, one would need to work back and forth with 20 different sellers, and conduct inspections on 20 houses that are each located at a different address.
Additionally, in some cases, this route would also require an investor to open 20 separate loans for each property. All of this headache could be avoided by simply purchasing one property with 20 units.
With the latter option, one would need to work back and forth with 20 different sellers, and conduct inspections on 20 houses that are each located at a different address.
Additionally, in some cases, this route would also require an investor to open 20 separate loans for each property. All of this headache could be avoided by simply purchasing one property with 20 units.
You're in a Position in Which Property Management Makes Financial Sense
Some real estate investors do not enjoy the actual management of their properties, and instead, hire a property management company to handle the day-to-day operations of their rentals. A property manager is typically paid a percentage of the monthly income that a property generates, and their duties might include finding and screening tenants, collecting rent payments, handling evictions, and maintaining the property.
Many investors who own one or two single-family homes do not have the luxury of contracting an external manager because it would not be a financially sound decision due to their small portfolio. The amount of money that multi-family properties produce each month gives their owners room to take advantage of property management services without the need to significantly cut into their margins.
Many investors who own one or two single-family homes do not have the luxury of contracting an external manager because it would not be a financially sound decision due to their small portfolio. The amount of money that multi-family properties produce each month gives their owners room to take advantage of property management services without the need to significantly cut into their margins.
Both Multi-Family Real Estate and Gas, Oil & Energy Assets Offer High ROI
The return on investment on oil and gas can be financially lucrative for qualified investors, since it can outpace the performance of other conventional investment options.
The United States Energy Information Administration expects the energy consumption worldwide to increase to about 50 percent by the year 2035, so now is a great time to diversify your investment portfolio by taking advantage of oil and gas investment opportunities.
The United States Energy Information Administration expects the energy consumption worldwide to increase to about 50 percent by the year 2035, so now is a great time to diversify your investment portfolio by taking advantage of oil and gas investment opportunities.
“90% of all millionaires become so through owning real estate.”
This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago...
We Support Our Country & It's Economic Growth
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We believe in the economic growth & energy independence of America.
By investing in oil production here in Texas, we help spur economic growth right here at home! |
At the start of this year, the oil and gas industry was responsible for 12.3 million American jobs.
Between 2012 and 2025, the oil and gas industry is projected to provide $1.6 trillion in federal and state tax revenue, supporting the maintenance of schools, hospitals, and public infrastructure across the country. |
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Only approved accredited investors may discuss open opportunities with BrightBuzz Atlas Management.
BrightBuzz Atlas Management, LLC. P.O. Box 340313 Lakeway, TX 78734.
© COPYRIGHT 2023. ALL RIGHTS RESERVED.
© COPYRIGHT 2023. ALL RIGHTS RESERVED.