1031 Energy: Energy Investment compared to Real Estate Investment
Oil and Gas is a worldwide or at least regional market.
Real Estate tends to be a local market.
Oil and Gas is a fungible commodity with prices driven mainly be supply and demand.
Real Estate is a location dependent investment, and while supply and demand influence price, location and other unique qualities can over ride market forces to affect price of real estate. As the law says, every piece of real estate is unique.
Oil and Gas, until produced, cannot be seen or touched.
Real Estate should always be inspected and visually evaluated.
Oil and Gas properties are evaluated based on scientific prediction about future production combined with price of product forecasts. After expected costs of production are subtracted, an income stream is predicted and reduced to present value.
Real estate is evaluated based on predicted income stream minus operating costs to arrive at a Net Operating Income (NOI). Value is expressed as a percentage of NOI.
Oil and Gas properties deplete over time. Each Oil and Gas well has a life expectancy. Sometimes life expectancy can be revived based on new technology and/or on changes in price of product.
Real Estate is subject to depreciation over time. Even with proper maintenance all building become obsolete over time. Even newer building can become functionally obsolete even though their physical condition is good.
Oil and Gas is subject to the forces of supply and demand.
Real Estate is subject to changes in local conditions, and its value can be influenced by changes in surrounding properties and neighborhoods.
Oil and Gas properties require regular maintenance.
Real Estate requires regular maintenance.
Oil and Gas properties are subject to extraction taxes.
Real Estate is subject to property taxes.
Oil and Gas properties require occasional infusions of capital.
Real Estate requires occasional infusions of capital.
Oil and Gas can increase in value if demand exceeds supply.
Real Estate can increase in value if costs of building .