Striking It Rich

 

It is not easy to pay attention to an investment in which the odds against making a profit have been calculated at 10,000 to 1. When an official of the organization handling the investment confesses, "A lot of people get rooked out of their money," the temptation to move right along can prove irresistible.

But wait. There is, on the other hand, the experience of a man we will call David the Designer. During working hours, David designs buildings for one of the nation's better-known architectural firms. In his spare time, he designs strategies for making money on that same long-shot investment.

First time around, he parlayed a $7,200 ante into $547,000.

He hasn't done so badly for himself since, either.

Every two months, the government's Bureau of Land Management (BLM) raffles off the mineral rights to some 1,500 parcels of federally owned land. You or your Aunt Susie -- or David -- can buy a ticket, so to speak, on any piece of land that interests you, as long as you are a U.S. citizen. The price is $75. Yon can buy a chance on as many parcels as you like (average size: 1,100 acres), but only one chance per parcel.

The government's computer then randomly picks a winner for each tract from among the pool of ticket buyers. If you win, you claim your prize by paying the feds the first year's rent of $1 an acre. As long as you keep paying that rent (it rises to $3 an acre after 5 years), the mineral rights are yours, up to a maximum of 10 years or as long as you want them if the land is producing oil.

Unless, of course, you sell them. What you hope is that an oil company will sniff some petroleum or natural gas under your land -- and will ask, in effect, "Gosh, how much money would you like for those, ah, mineral rights?"

This is not, shall we say, a sure thing. As the BLM is quick to point out, the most promising tracts of government-owned land, such as the hot offshore drilling areas you read about in the newspapers, don't even make it into the lottery; instead, they are auctioned off directly to the oil companies, with rights going to the highest bidder. Even a typical lottery tract draws 150 applicants, and parcels that look good from an oil prospector's viewpoint draw considerably more. And if you win a tract, there is no guarantee you will get anything more than a chance to pay the rent. That depends on a host of imponderables, like where the oil companies happen to be looking that year.

"Overall," wrote the money-management magazine fact a while ago, "the odds against winning a parcel that will draw the interest of an oil company -- your only realistic objective -- are 10,000 to 1. That's a long shot by anyone's definition."

Mark Guidry of the BLM agrees. "It's by no means a sure-fire investment," he says drily. Then he lets drop that comment about people getting rooked.

David, however, didn't get rooked. Three years ago he got a tax refund of about $7,200, and instead of putting it in something safe, like orange-juice futures, he put it in the lottery. Since he was a novice at the time, he gave his money to a company that specializes in finding promising tracts, then filing applications -- buying tickets -- on its clients' behalf. At the time, the filing fee was only $10 a parcel, plus another $14 each to the company. So David's $7,200 bought him chances on 300 pieces of land.

He won -- twice. One tract was in Utah and he says he "hasn't had a sniff on it yet." The other was in Colorado, some 5,200 acres. Amoco Exxon, and a couple dozen other companies came panting at the door over that one. Thence, after a round or two of bidding, came the $547,000, plus 5% royalties on everything produced on the tracts.

David, not surprisingly, was hooked. He bought some maps from petroleum-research companies and began learning about the business. He started calling landowners and lottery-winners in areas near the parcels he was interested in, asking if any oil companies had been nosing around. Eventually he stopped using the filing-service company and went out on his own. Now his only help comes from a Texas geologist who, for a modest fee, evaluates land parcels. And he has won five more times, including one tract that he estimates is worth $305,000, plus royalties.

The secret, says David, is simple. Be willing to put in a lot of money, learn what you are doing, and calculate the odds. "You have to play a hundred, hundred-and-seventy-five parcels over a period of time," he says. "You can't just play one and expect to hit." That, of course, runs up a lot of $75 filing fees. And if you do win a parcel you have to be ready to pay the rent.

By David's calculations, though, the odds just aren't that bad. Suppose, he says, there are 400 tracts available in Montana. Out of those, maybe 150 are worth something, and maybe only 10 are worth more than $20,000. Identify those, bet on them, and you have a fighting chance of making some money.

A good filing-service company can help you, of course. But don't give your money to one until you have checked it out carefully. The business being what it is, it has in the past attracted some shady operators. And despite what the companies' promotional literature may claim ("The U.S. government guarantees you an opportunity to strike it rich!" one trumpets), the odds are reasonable only if you do your homework.

David himself is getting a little choosy now: He only buys tickets on tracts that promise a return of better than $50 an acre. Still, he is not likely to quit. "It's a disease," he admits. "I find myself not being able to get out of it."