Monday, June 2, 2008

Part 3: Oil and gas investments vs. real estate investments

Third article in a series on comparing oil and gas investments to real estate investments:
This is the third in a series of articles based on my own experiences with investments in oil and gas verses real estate. You can read the first article here.

Regulation and additional liability issues:
For oil and gas investments, the investor has very little to no liability exposure (see article 1 of this series) and no regulation issues other than SEC regulations for accredited investors. The oil developer is responsible for the liability and all regulation requirements to drill and put a oil/gas well into production. The investor has no time commitment required other than funding the investment. However, for real estate, you read more and more these days about new regulations being added to income property owners at the city, county, state, and federal levels.

Some cities now require rental dwelling (apartment, house, etc.) owners to be licensed. The intent is to teach owners about code requirements, how to get rid of bad tenants, how to reduce crime, how to find quality renters, etc. With a license, the city can control the quality of property owners, reduce crime, and increase the quality of rental units for current renters. This licensing requirement is growing as many cities experience success in raising the quality of tenants and rental properties while reducing crime. Another desired benefit is increased tax revenues as property values rise (hopefully) due to more desirable housing/properties.

There are many other regulations either being considered or currently in effect on income property owners. Laws are being considered to require designated smoking areas within apartment complexes. Owners are being held personally liable for crimes committed on their properties with claims the owner didn’t do enough to prevent the crime.

Additional real estate insurance issues (see the first article in the series as well):
If proven guilty of not properly safeguarding the property, you may have insurance issues if the insurance company also feels you didn’t do enough to prevent the crime. They may not pay damages in that case. Outside of crime issues, the insurance coverage you have on a property may not cover natural disasters such as earthquakes. Many property owners don’t realize they need to purchase separate insurance for earthquakes and these policies don’t usually cover the full replacement cost of the structure. The owner usually has a large deductible that will need paid to rebuild. Also, the insurance may not have kept up with increased property values so will pay out much less than the new increased cost to replace the structure.

Next article in the series:
The next article will continue these comparisons between oil/gas investments and investments in real estate.

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Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: Past articles can easily be found at This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content

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