Accredited Investor Talk

I get email messages and calls resulting from scanning this Accredited Investor Talk blog. One debate I had formed this week was with coal and oil (O&G) buyer who combine these investments with real property. I thought his strategy would be of interest to both the coal and oil traders and real estate investors who follow this website. Most of my prior articles on coal and oil investments assume another person possesses the associated land where these wells are drilled, but the partnership funding the drilling projects secures the privileges to a lease for drilling on the land.

In the situation of the buyer I spoke with, he first purchases land near Texas cities with strong suburb development that is also strong potential customers for oil or gas. The land is bought Once, he drills and puts the associated wells online to generate cash flow from the land. Later, when the value of the land grows from homes being developed in the suburb nearby, this investor begins also developing the land with homes to market. Create a detailed business plan and investment strategy before even starting this project: Among the first steps before starting this project must be considered a detailed business plan and associated investment strategy.

The business plan must detail the actual entry and exit strategies are for the various phases of this task (the O&G stages and real property phases). It needs to fine detail all the main element stakeholders in the project, their responsibilities and roles, and how they’ll be compensated. The plan should document the various probabilities of success (and failure) for every stage of the task, which links to the level of risk involved. The program also needs to discuss the actual investment strategy is for this project that ought to relate to the probabilities and risk levels included. There are infinite strategies that could be used throughout the project.

Will other investors be brought in for various phases of the task or will all funds come from the original traders only? Having a clear strategy identified and documented the available plan for every stage of the task helps maintain the focus and helps articulate the task to others.

I’ve written a previous article with an O&G investor’s investment strategy that provides an example of one O&G investment strategy. Purchasing the right land: This investment will include land with a solid probability of including productive oil and gas deposits. One of the ways to increase the odds of shopping for potentially successful land is to buy near other productive wells.

The logs from these wells should be examined to see potential O&G debris underground in this land. However, purchasing land near current producing O&G wells usually means the price tag on this land will be high. This must be looked at in any revenue model used to aid a business plan for this combined real estate and O&G drilling venture.

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If you over purchase the land, then the revenue from the wells won’t provide enough comes back to make the task profitable enough to counter the high risks involved. Managing the money movement: The task needs to clearly document how cash generated from the O&G wells will be utilized. These wells won’t provide income permanently as the associated limited supply of gas and essential oil is pumped out. Therefore, an obvious strategy must be defined on where in fact the resulting revenues will be directed – leveraged/or not, reinvested, or otherwise spent. After the revenues start to arrive from the real estate development side of the project, this must be described and prepared too.

In all situations, the causing taxes issues must be known and dealt with in the cash circulation strategy. Finding a good developer of the true estate projects: Again, unless the designers of this project have the required experience developing successful real estate projects, a successful real estate developer should be used. This may cost more, but their capability to build up successful projects should decrease the risks involved. Define what real estate income strategy will be utilized: Will the land be sub-divided and sold off as homes/commercial sites are developed? This would provide large funds to the investors, while also giving them an exit strategy as the true estate is sold off.

Alternatively, will flats and/or commercial structures be built and leased or rented for ongoing profits to the investors? This might generate ongoing income to the investors while also hopefully providing capital gains as these property values increase. Perhaps a hybrid strategy will be used that considers selling off a few of the land while keeping other portions for ongoing rental revenues. That solution provides both large upfront profits from sales and ongoing profits from the rest of the rental properties.

Exit strategy: A leave strategy must be defined about how the investors can sell out their interest in the task. Will the project be taken public (if it is large enough) where investors could sell out their shares on the market? Will other investors have the right to buy out an investor’s interest in some other way?


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