Ep 140: Help to Save the Environment While Saving Money with Mark Livingston

You don't want gas coming to your house that's not nearly 100% pure natural gas. Because when you turn on your water, when you turn on your furnace, when you light your stove, you want that to light immediately.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larsen. If you haven't yet, get a copy of our book for free at our website, nextlevelincome.com. that's www.nextlar levelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, we have Mark Livingston. Mark is a Corporate Executive and CPA with over 35 years of professional experience. After attaining a degree in accounting, Mark progressively gained more experience in various audit and accounting roles. And he is currently the chief accounting officer at a public company leading finance accounting teams in multiple states and countries. In 2015, Mark started investing outside Wall street, primarily focusing on real estate, targeting high yields and consistent cash flows. More recently, Mark has started to focus on projects and strategies that also provide tax advantages for high earning professionals who are primarily W2 and 1099 earners. If you're interested in learning more about these tax saving investments, listen to today's show. Mark, welcome to the show.

Thanks Chris. Happy to be here.

Yeah, it's great to see you again. It's great to see you again and I'm really excited because as I talked about in the intro, um, you know, first off, you and I have gotten to know each other through the mastermind, through some of the other stuff we've done with our, our private coaching group. And you know, the, the things we're going to talk about today are a little bit different and I'm really excited to share this with the audience here. But before we do, as always, let's go ahead and talk a little bit more about your background and kind of how you ended up where you are today.

Sure. So today I still have a full time job, the chief accounting officer at a public manufacturing company. We, most of our manufacturing is us. We do a little bit in Europe, so I'm in charge of that. What I would like to get across to everybody though is even though I'm a cpa, I don't claim tax expert. I do corporate accounting, SEC reporting, those types of things. I've learned more about taxes through this passive investing that we're talking about than I ever did just being a cpa. So. So a turning point for me came a little over 10 years ago. Got divorced, took assessment of where I stood financially, wasn't very happy with it in my late 40s, and looked at a really short timeline for saving for college, saving for retirement. You know, all those traditional things that we talk about. My first wife and I had not done a very good job of that. Led me to a lot of talking to people, talk, reading books, finding the books, like Rich Dad, Poor Dad, Multiple Streams of Income by Robert Allen, those type of things. Starting to listen to podcasts and then by, you know, after the first couple years, met Liz, who is my wife now of nine years, and talking to her about, you know, I said, we're gonna have to do something different. You know, the traditional methods are not going to work. Here's what I've been learning. This is where I want to take us. And she agreed, and she supports me fully on that. And so that's really how I got started down this road.

Yeah, no, and that's. Look, that's something we. We touch on every once in a while, Mark. But you just brought up something that I think is so important. It's so important to have the right partners on this journey. And, you know, we both. You know, we both started. We said, hey, this. You know, the. The traditional methods don't work. My wife, she's an architect. She's not. She's not a financial expert, but she's very supportive, and she says, hey, I get this. This makes sense. And it's. It's very important as you go down your path towards financial independence, that your partner is on board with you. Because finances are so emotional, and if. If somebody's pulling away the other. Other direction, it's almost impossible to get where you want to go.

Yeah, that's very true. And just like you said, Liz is. Is not. Not financially sophisticated. She. She does not want to be financially sophisticated. Like, don't let. Don't make me do math. You know, that kind of thing. But the funny thing is, just a little side note is during this period of time, we've watched Shark Tank. Oh, yeah, I catch it now. After watching for a few years, I catch her going, that valuation's too high. No, they need to do this. I was like, what are you. What happened to you becoming a valuation expert?

You know, and, yeah, you just get.

Exposed to it, and, you know, it. It helps, you know, it really does.

Yeah, it really does. And just, you know, those. Those conversations, and my wife's become more comfortable with it. My wife's, you know, she's frugal, she's a saver, which, which definitely helps. You know, you can have somebody kind of with the, with the water spigot out the other side and you're trying to fill up the tank. It doesn't help so much. But so Mark, we, we both talk, I mean, you know, we talk a lot about real estate and different things, but about little less than 10 years ago. So I was in my W2 role, had a great year. I started looking at these alternative investments that also had some tax advantages involved. And the one that I came upon was oil and gas. And you and I were talking before the show and before we jump into kind of like the investment side of things. You mentioned, you know, some of the different tax codes and why certain people can take advantage of passive losses with some investments and not others. So would you mind talking a little bit about the differences between asset classes and how these affect different types of income and whether you can or can't use quote unquote losses or passive losses against different types of income. I think that's an area that's very, very gray. It's not well understood by a lot of people.

Yeah, there's. There's a specific code in the IRS code 469 and it's titled Passive Loss Activity Rules or something similar to that. It actually came about in the 1986 Tax act back when Reagan was president. And what it basically says is if you're a guy like me that still has a W2 job or, or you're fully active as your business owner or something like that, that's non real estate. You cannot use the losses from your real estate investments or anything where you are a passive investor to offset tax from your or offset taxable income from your active job of being a full time employee or a business owner or something like that. That' basic message in that piece of the code. There's an exception to that. And the exception is it if you are a passive investor in an investment that has the production owns the production of oil or natural gas.

Okay.

Matter if you're passive as an investor, that automatically is exempt from that piece of the code and you can use any losses from that investment to offset taxable income from your W2 1099 or you're a full, full time business owner or anything like that. So that is a piece that I really started focusing on because I live Houston, Texas, which is considered the energy capital of the world.

They got some oil down there.

Yeah, I've Worked around a lot of energy companies and so have a pretty good understanding of the energy business. And so. And I'm still working and wanted to offset that W2 taxable. So I started focusing on that piece. And there are some things that I've raised capital for and some things that I'm working on and some things that I've invested in with others, you know, that I'll take advantage of that tax exemption that's within that piece of the code.

Yeah. And it's nice. I mean, it's. Real estate has always been my area expertise, but at the time, I think I was able to deduct it was like 80, 90% of my investment in those. It was actually two oil wells. They ended up turning a nice profit and I got a nice tax deduction on the front end, which is something that I wasn't able to take advantage of at the time as a W2 earner with real estate. And I think that's the other thing. A lot of people, they jump into real estate, they hear about the tax benefits and they start making a little bit of money. The phase out is around 150,000. And next thing you know, I talk about in my book how my wife and I got married in the next year, our tax rate doubled and our tax bill basically quadrupled because, you know, we both started to make more money. And next thing you know, here we are, you know, our tax rate's twice what it was. And it was, it was a bit of a shock. It's like, well, wait a minute, you know, so people start to feel penalized for being successful. So this is an area that still is out there. It can be controversial. I know people are like, wait, why should we incentivize oil and gas? Well, I think we talked about this our last mastermind. I mean it. We can't make the world go around on, on solar and wind yet. I know we're going to talk about some different things that are out there, but still so important for our economy. Right?

Yeah. There's a couple of charts I keep that I like to show investors when I'm talking to them. One of them basically shows that GDP or basically the wealth of society is over 90% correlated by how much energy. Energy goes into the economy and it doesn't matter what type energy. But then the other chart shows what types of energy we're using. And it shows that these renewables and nuclear and those such a still today, such a tiny fraction of the total amount of energy that our economies use around the World, us especially. And, and I tell people a story. I said, think about it like a human body. Human body does not work without energy. And that energy comes from the food that we eat, right? Yeah, same thing as the economy. The economy does not work without energy going into it.

Yeah, I love it. Well, and I think, man, what a great metaphor, Mark, because, you know, and we also eat different macronutrients, wheat fats, we eat proteins, wheat, carbohydrates. And there are some things like if I'm riding my bike and I have five miles to go, I might grab a can of coke and get some quick sugar into my body. Whereas if I'm, if I'm getting ready to ride that race, I'm gonna eat more complex carbohydrates, more fat, things are gonna burn slower. And I think that's one of the things. I know this isn't really what the, what we're talking about, but I think it's interesting as we talk about some of the stuff, why it's so important is that we have peak energy demands. And peak energy usually occurs during times of day when solar and wind aren't at a peak. So we need other forms of energy that maintain those levels and store those. Right. Because we can't store solar and wind. Am I right on that?

That's basically right. Yeah. A lot of, in the summertime, a lot of the peak, and is really towards the end of the day when it's the hottest and the solar is fading out. You know, a lot of wind is higher, wind during the day, wind at night, those types of things. And you need, if you want to have a robust energy system or utility system, you need energy you can turn on quickly. Like, Like a power plant.

Yeah, no, it's. And look, I love the environment. We had a, we had a Prius many years ago. We have a plug in hybrid today. We have solar panels on our, the, the first house that we built. And I think it's interesting, solar panels are usually made out of petrochemicals as well. So you need, you need petrochemicals to make some of these renewables. So it all, it all, it all plays hand in hand. And I think kind of taking that, you know, over towards the investor side of things, you know, there are different types of investors and different needs at points in our, in our life. So, you know, you mentioned you got interested in some of these other investments, Mark, that had some of these tax benefits. Maybe you can talk about, you know, what's out there, because from my knowledge, I just I just knew about oil and gas. And you came on, you talked to our mastermind, and you started sharing some other things that are out there that I wasn't aware of that are pretty unique.

Yeah. So let me start with one you brought up earlier. You invested in some oil wells. I have an. I'm in a oil well syndication. That's multiple wells. That's the traditional way that people are investing advantage of this code. But there's a lot of risk. Some of those wells might not work out, you know, so I think there's more risk. What I've found is there's other ways to invest in the production without as much risk and a little more stability with the income, and you can still get those tax benefits.

Love that.

So the first one. Yeah, the first one that I came across was what we call some CO2 scrubbing equipment. So what a lot of people don't realize is that when we produce natural gas out of the ground through the gas wells, there's usually other gases with the natural gas, and these companies have to separate it out. You know, there's a big pipeline system all over the country to move natural gas around. You don't want gas coming to your house that's not nearly 100% pure natural gas. Because when you turn on your water, when you turn on your furnace, when you light your stove, you want that to light immediately. So there's regulations that has to be a minimum 95%. So the first thing that those, those operators have to do is figure out a way to get those other gases out of the natural gas stream. Okay. So in West Texas. West Texas, a lot of the natural gas has CO2 in it. Like 20 to 30% of the gas when it's coming out of the ground is O2.

Oh, wow.

So we, we have some CO2 scrubbing equipment that we put at the well sites and run the gas stream through our equipment. And it absorbs all the CO2 into a solvent. And what comes out is natural gas that the well operator can put into the pipeline system. So we're helping them by doing that.

Yeah.

And then we don't. There. So we take that salt once it's fully absorbed with CO2, and we inject it back ground and use it as what they. What they call in the industry is an enhanced recovery tool to force more oil or more natural gas out through the existing wells. They can increase production without drilling new wells. So there's another economic benefit operator there. The side benefit is all that CO2 sequestered back into the ground. So we kept it out of the atmosphere.

Yeah, yeah, yeah.

So there's really three benefits in this situation. We cleaned up their gas so they can sell. We've enhanced the recovery on the fields that they already have without any new wells, and we've sequestered this the down into the ground. So there's an environmental benefit.

Yeah, it's kind of like the old adage, like invest in the picks and shovels. Right. When you're, when you're mining for gold. So you're, you're there and you're able to add an additive benefit with this technology. It enhances, as you mentioned, you get, you get a win, win, win situation. But it's also. It sounds like it's also more predictable because.

Predictable because it's really. Our revenue fund which owns the equipment is lease revenue on the equipment.

Got it. So you're in the lease. Is that, Is that correct?

Well, it's not elite, not a natural gas lease. They're just. They're basically paying us for the service of using our equipment, and that's taking the CO2. We actually, I guess in the, in the legal sense, we actually own the CO2 once we've absorbed it out of their gas because it's our solvent that absorbed it. Therefore, when we're enhancing the production of the field, that's where the tax code comes into play for us. It says, gotcha, we're in production. So we're the ones who have the ownership interest in that increased production.

Love it.

That's why falls into now act side. Even though our investors are passive investors.

Yeah, no, I love that. That's, that's really cool. And, you know, there's something I talk about in my book, which is variance drag, which is, you know, one of the reasons I got so interested in multifamily in the first place, because you say, hey, multifamily. All right, let's say it has the same return as the stock market, but the stock market's more volatile over time. Because the stock market's more volatile, it actually has a lower geometric average return. So you could say, hey, the average return of a multifamily investment is 10%. The average return of the stock market is 20%. But if the stock market goes up and down, say 30%, you know, around that 10% average. But multifamily only goes up and down, say, 5% around that average. And I'm using sample numbers here. The multifamily or that other investment is going to return a higher return in the stock Market over time because of it. So I really like what you've, what you figured out, which is, hey, if we can find an energy centric tax advantage vehicle that has more predictability, less variability, you know, even if the return may be lower than oil and gas, if it's more predictable, those returns can end up being significantly higher in the long run.

Yes. That's.

Yeah, that's awesome. Yeah, we've talked about this. It's, I think it's, I think it's fascinating. I love these win, win scenarios that are out there. So even, even if you're, even if you're an environmentalist at heart, I think this is something you could, you could even get into.

Yeah. Yeah, definitely. I think so. And, and it doesn't stop CO2. I mean, there's other things. As we were talking before the call, I discovered, you know, that helium is trapped in natural gas and there's enormous demands for helium.

Yeah, you're really. I know we, we talked about this and you're pretty excited about this. And this is something that's totally, totally new to me. So I guess before we talk about kind of what you're doing with helium, Mark, can you give us a little bit of background on like, what is helium used for? Aside from my son coming home two weeks ago and inhaling it and talking to me like Donald Duck over here.

Yeah. Do you know why it does that?

Does something to your vocal cords. Right? Is that right?

Has to do with the density of the gas.

Okay, so it's.

And so as the sound travels the helium, the notes go higher.

I should know that. Well, now I do. So there you go.

Learn that from one of my own who's. Whose kid had done a, like a science study on helium. Because I didn't know that either. Yeah, but, but yeah. So that's just a little fun fact about helium. But yeah. So most people know helium for party balloons and blimps. There's a lot of industries that use helium, and they have never found a substitute for what helium does for them. So just to name you, Helium, as an element on the periodic table has the lowest boiling point. So that means any somewhere around 4 or 5 degrees above absolute zero. It goes from a liquid to a gas.

Gotcha.

So if you buy it, it's super cold. The perfect use for that is to keep superconducting magnets cold so that they operate. The most common where superconducting magnets are used is in MRI machines. There's a lot of those in the world. And they. People With a lot of medical diagnostics.

Yeah.

And so they're very.

Every spot, almost every spine surgery I was ever in, we had an MRI sitting there in the or. Yeah.

And helium by its nature, with the molecule being so small, is actually very, very hard to keep inside containers.

Makes sense.

It tends to even leak through some. Some certain types of steel containers and things like that. So even as this use can lose some of the helium, so it needs to continually be refreshed. There's an article I sent out to my investor list, I think a month or so ago, I think it was NBC was talking about all the hospitals that are just really stressed about the high cost of healing because. And. And just how hard it is to get. Wow. Wow. And due to the shortages, which I can get into in a few minutes. But some of the other uses. NASA just signed a contract over a billion dollars to supply helium for use in their space programs. All the space programs that are out there, the public one and the private ones, you know, they. They all need helium to use in some form in their rockets. It helps them with cleaning out their fuel tanks. It helps them with forcing the fuels out of the tanks and things like that. I think there's some other things they use inside the cockpits too, that those wow. People. So semiconductor industry needs helium when they're making fiber optic cable. You also need helium when you're making that. So if you can imagine a world with no helium, that would be a world with no MRI machines, no semiconductors, no fiber optic cables. That'd be a completely different world than we can think of.

We would not be doing this right now.

Yeah.

So, yeah, we'd have to be. Maybe we'd be face to face, but chances are now we have to figure something else out. We'd have the cans with the wire with the.

Some of the other uses just to run a few more off. Welders use it in certain types of welding applications. The shipbuilding industry uses helium to detect cracks and leaks inside ships hulls.

How about that?

Yeah. Fascinating. The molecule is so small it can go through there. It's one of the gases that they use for airbags. And the reason, because you can come helium so tightly and then explode it out and it doesn't cause a fiery explosion, it's just a, you know, explodes outward. Wow. Wow.

Interesting. Yeah.

And. And there's more, but those are the.

Yeah, well, that's super important. Right. Because there's. We need, we need demand. Right. That's what I love, demographic drivers. The demand. I mean, that's why apartments? And you know, several of the other investments we're in right now are, are doing so well. So we have these underlying demand drivers. And I think what I'm, what I'm hearing from you is all of those demand drivers, they're only growing semiconductors, medical MRIs, space, you know, as we expand. That's, that's fascinating. So what, what are you doing specifically in, in the industry, in the market with, with helium then?

So I mentioned earlier, it's trapped in natural gas. So helium, while it's, I believe, the second most abundant element in the universe, really rare on planet Earth.

How about that?

Yeah, it's formed down in the Earth's crust through some reactive processes that happen down there with certain other elements. Anyway, the helium forms, as we know, certain things will migrate up through the crust just like gas do they, they migrate up and they get trapped by granite and other hard formations. A lot of helium migrates all the way to the surface and floats away and is never, never captured. The only place that we've really ever found where it gets trapped, that we can get to the helium is when it's trapped in natural gas. And it doesn't happen in all natural gas fields. It's only, you know, in certain areas. So, so what we are doing is we are going to buy a natural gas field. It's roughly 50,000 acres of natural gas rights. These and, and the wells, there's already, well, probably over 100 wells there producing natural gas. I've seen the well logs. I have an oil and gas partner who's worked in that area his whole life, over 40 years experience. I've been to his office, I've looked at the well logs, he's walked me through them. So we can see the gas analysis as that gas come out of the ground. So we know the helium is there. So we're going to buy that and then we're going to buy some equipment and design and build some other equipment so that ultimately we can pull 99% of this helium of the natural gas and take it to market and sell it. Yeah. And when we are at that point, we'll have more revenue from the helium than we will from the gas.

How about that? And that? And why is that? Is that because helium is more expensive than natural gas? It must be.

Yeah. When you compare it on the same volume, say cubic foot volume.

Yeah.

It's more than 100 times the value of natural.

So you really don't even need the natural gas at that point for profitability.

Yeah. So like in our financial models, we keep the natural gas price at a very low price.

Gotcha. Gotcha.

What? Not the right thing. We're for Mark.

What are we going to do if we run out of natural gas? Like, how are we going to find helium? We're going to have to go into space. What are we going to do?

I don't know. We. We probably would, I think. I've heard there's a lot of helium on moon, maybe so that's not far away in relative space. Right. I could be wrong about that, but I, I think, I think that I've heard that. So. But I don't think we're going to run out of natural gas either. I think there's more natural gas around than people really realize.

You know, it is interesting. I remember reading about Peak Energy 20 years ago and everybody's worried that, you know, we're going to run out. And then, you know, now we have wells that drill sideways and, you know, you go 6 inches down instead of 6 or 16ft down and do that. So it is wild how technology improves and expands and becomes more efficient. And it is, it's fun. And that's why I love talking to people like yourself, entrepreneurs that are solving these problems. It's, it's really cool to figure out how we can, how we can create, you know, create solutions to these things. Oh, go ahead a little bit. So, yeah, please.

Work field. We're looking at buying. I've talked to our oil and gas guy and let me let you in on the other part in the deal because he's critical. But I asked him, I said, so, you know, we're going to buy this and we're actually going to drill more wells and increase the production of natural gas too. I said, how long is this gas going to last? Yeah, well, based on what we know is down there already and the level you want to take the gas to off this field, probably another 100 years. Wow.

Okay. So that's plenty of time. Plenty.

And we hear all the time about Germany doesn't have enough natural gas and Europe and all the things that happened over this last year, you know, and a lot of gas from North America goes down to the Gulf coast, gets liquefied and shipped over there.

Yeah.

I didn't realize until recently they have huge natural gas fields in Europe. They're just not mining them, they're just not drilling them.

Yeah.

There's gas worse comes to work, they can drill on their own land and. Yes. You know.

Yeah.

So there's one other partner in this deal that's really critical to it. And his expertise is in the field that's called industrial gases. So this is not like natural gas. These are the non flammable gases. So, you know, they basically started out just taking the atmosphere and separating it out between nitro, you know, separate all the nitrogen out, separate all the oxygen. That's how we get oxygen bottles and, you know, things like that. And with all these gases, and that's basically that we're going to employ is the technologies that industry uses to separate all the gases in the gas stream at the molecular level. And that's how we'll get to as much helium as we can possibly get.

Gotcha. That's awesome. I know, again, I enjoy talking about this with you. Every time we get together here and do that. I know there's probably some people listening that want to, want to learn more, maybe even are interested and learn more about your investment opportunities and what you have. What's the best way for people to get a hold of you, Mark, Reach out to you, learn more about all the different projects that you have going on?

Sure. So we created an email for this podcast. It's Next Level at match real asset.com so anybody who sends an email to that will get access to me, the ability to schedule time with me. My team will start sending you information and if you want information on CO2 scrubbers, we can give that to you. If you want information on our helium project, we'll give to you. If you want to just talk about investing in oil and gas or, or anything else that we've covered today, you can set up a call with me and we can talk. So it's, it's just simple. Email next level@matchrealassetpartners.com Perfect.

And we will have that in the show notes. If, if you've heard what Mark's talked about today, especially if you're, if you're still a high income earner, W2 under 1099 earner and you love some of the benefits that you're getting from real estate, but you want to have some options that may be able to affect your tax bill, you know, from your ordinary income. Mark's become a friend of mine. Like I said, we're in a mastermind together. I've come to know him quite well. Reach out to him, have a conversation with about this. Mark, it's been a blast talking to you about all this stuff again and look forward to seeing you again here soon.

Yeah, thank you very much, Chris. Thanks for having me on your podcast and look forward to meeting again with you too.

Always. Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like comment, share and take just 90 seconds to give us a rating on Apple Podcasts.