Royalty Advantages

Oil and Gas Royalties
in a 1031 Exchange

With the cap-rates on triple-net real estate properties compressed to their lowest levels in decades, investors are looking to alternative solutions for 1031 replacement property.

One strategy exchangers are turning to involves adding producing energy royalties to their replacement property mix. With oil and gas prices less than half of their all times highs, some investors see it as an opportunity to sell real estate at a high and buy into another asset class at a low.

Owners of royalty assets receive a percent of the monthly revenue generated by oil and gas companies who drill and operate wells on their property. Unlike oil and gas drilling investments, royalty interest holders do not get billed for exploration, drilling or operating wells, nor do they share in any of the risks or liabilities associated with that side of the industry (the triple-net version of an energy property).

Many clients will avoid boot on their exchange by allocating any leftover equity to royalties that might remain after their primary real estate purchase. Often viewed as a natural hedge against inflation, the attractive return profile of royalties along with the non-correlated nature of the asset class make it a worthwhile option to consider when mapping out exchange options.


Transaction Size Flexibility

Royalty ownership is a 1031-exchange alternative that allows you to customize your investment level. Whether you need $100,000 or $5,000,000 worth of replacement property, we can carve out the exact interest that fits your exchange.

Superior Cash Flow Potential

Peregrine typically targets royalty properties that generate annual returns over 2X what is available in today’s comparable real estate market.

No Capital Calls

Investors in oil and gas drilling programs or tenant-in-common real estate offerings bear the risk of future capital calls. Royalty owners do not face this risk.

Investor Independence

Owners of undivided interests in royalty properties are not locked into an ownership structure that links them to other investors in the same property. Each owner is free to exercise control over holding period and exit strategy to suit individual investment objectives.

Tax Savings

15% of royalty income is shielded from tax regardless of the carry-over basis from the previous property.

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Portfolio Diversification

Cash flow from multiple producing wells and undeveloped acreage for potential future production can alleviate the risk of owning a single property or being over-concentrated in traditional real estate.

Client Testimonials

With oil and natural gas prices near historical lows, it made sense to make royalties part of our exchange… especially with the real estate market approaching all-time highs.

Daniel G.
Daniel G. , Santa Barbara, CA

I like the independence that royalty owners enjoy, each being able to control their own hold or liquidation strategy. The typical higher returns over traditional real estate is also a nice plus.

Mark E.
Mark E., Fort Myers, FL

We wanted to diversify our exchange since we already owned a fair amount of real estate. Peregrine was able to find several royalty properties that fit our needs and helped bolster our monthly cash flow.

Susan H.
Susan H. , Denver, CO

We knew nothing about oil and gas, let alone royalties. Peregrine helped us understand the asset class and how their clients in the past had incorporated it within their 1031 exchanges.

Diane B.
Diane B., Austin, TX


There are significant risks associated with investing in oil and gas royalties. The above information is for general purposes only and is not a solicitation to buy or an offer to sell any securities. General information on this site is not intended to be used as individual investment or tax advice. Consult your personal tax advisor concerning the current tax laws and their applicability and effect on your personal tax situation. Risk factors including commodity prices and production can significantly impact the value of the asset and ability for an individual to get liquid. This is neither an offer to sell nor a solicitation of an offer to buy interests in oil and gas royalties.