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I was into geoarbitrage before I even knew there was a word for it. Living in LA was too expensive to be sustainable, so I decided to seek greener (and cheaper) pastures in Savannah, Ga. But that wasn’t quite cheap enough, so I moved again and bought a fixer-upper in the middle of nowhere, PA. Now, I’m living mortgage-free and saving up cash so I can reach financial independence.
Will geoarbitrage help you reach your financial goals? Find out how you can cut back and reduce your monthly expenses by finding a new place to live.
What is Geoarbitrage?
Geoarbitrage is the act of moving from a high cost of living area to a low cost of living area to save money. Housing is the number one expense for most people, so finding a way to lower that is a great way to save a lot of money and focus on building wealth.
What Are the Advantages of Geoarbitrage
There are a ton of advantages to geoarbitrage, especially if you want to embrace frugality and retire early. The main advantage is a lower overall cost of living, but a lot of people chose this life for the tax advantages. Another, non-financial advantage is that these places are generally less crowded.
Lower Cost of Living
The biggest benefit of geoarbitrage is the copious amounts of money that you can save on living expenses. The ability to keep more of what I made is the number one reason why I left Los Angeles. It was just too expensive. There was absolutely no way that I was going to achieve financial independence living there. I realized that I could transfer my job to Savannah GA and save a thousand dollars a month on my mortgage alone. That’s a huge amount of money!!
But then, I found another job in an even cheaper city and decided to take geoarbitrage to the extreme. Now, I live in a very small town in the US with an incredibly low cost of living. This transfer allowed me to greatly reduce my monthly budget which allows me to pay off my credit card debt faster and put way more money into my investment portfolio (I prefer Vanguard’s index funds).
Buying a Home
Unfortunately, houses are just not affordable in some of the hottest US markets. Home ownership is out of reach for millions of Americans. In Los Angeles, the average home price is currently a whopping $570,000! That comes out to about $633 per square foot! You’d have to earn over $95000 to “afford” that! And I put afford in quotes because that’s with paying most of your income to your mortgage every week. The so-called experts think that’s affordable, but I do not.
In comparison, the average home price in Savannah is just $111 per square foot. You can buy a decent house in that city for less than $200000. That’s way more affordable! And there are cheaper options available. There are still places in the US where you can buy a house for under $100000. I bought my home in PA for just $52K. If you want to pursue financial freedom but think it’s out of reach due to home prices, consider geoarbitrage.
A lot of people chose to geoarbitrage to states without income taxes, like Texas or Florida. Others just try to find areas with low property taxes. I’ve always considered moving back to Chicago, but they have some of the highest property taxes in the country! The tax rates are over 7%! I was only paying 6% in Los Angeles (granted, 6% of 570000 is much more than 7% of 276000, the average home price in Chicago). In comparison, the average property tax rate in Savannah is only 1%. And I’m no math genius, but 1% of 200000 is way cheaper than either of those other options.
Lower cost of living areas tend to have fewer people. This has been a freaking huge advantage for me! I can go into almost any restaurant and be seated in less than 30 minutes. Bye-Bye, two-hour wait times! The roads are less crowded as well. Unless there’s an accident, I can get to wherever I need to go in less than a half-hour. No more spending my life in traffic!
I actually thought I’d have a hard time adjusting to life in a smaller city. I grew up in Chicago and lived in Los Angeles for most of my adult life, so I always considered myself a city girl. But small towns can be just as lively as big cities. Savannah was the best of both worlds. There are tons of things to do in Savannah, it has a hopping downtown scene, nearby beaches, and all the amenities you would need, but with small crowds and little traffic. Pennsylvania is much more rural, but I’m not that far from a few cool cities if I need to get that city feeling. Another big bonus is that I was able to buy a home right in the middle of a cute small town. I have a grocery store and a few bars and restaurants right within walking distance! You can’t get that in any city for 52K!
Are There Any Disadvantages to Geoarbitrage?
Nothing is without its disadvantages, and geoarbitrage is no different. There are quite a few reasons why this system wouldn’t work for everyone. The biggest reason is the lack of jobs, but lack of family support and the act of actually moving can be big deterrents as well.
If you aren’t financially independent yet, you need to know what jobs are available in your cheaper destination of choice. Unfortunately, high cost of living areas tend to have the highest-paying jobs. The median incomes in the cities with the most affordable houses are staggeringly low – it’s easy to see why houses are so cheap, no one in the town would be able to afford them otherwise!
This doesn’t mean that geoarbitrage is unattainable though. There are a few things that you can do to make it work. First, you can find higher-paying jobs in these areas if you have the right in-demand skills. Second, you can always work remotely. And third, sometimes taking a pay cut is worthwhile for the savings. I took a ten thousand dollar a year pay cut to move to Savannah, and I was still able to save more money. That’s pretty fantastic.
Achieve Financial Freedom First
One way to mitigate the lack of jobs is to achieve financial freedom before you move. Many folks live in expense areas and plan to retire to cheaper areas. This allows you to save a ton of money and build wealth while you are working, but greatly reduce your spending when you retire. This method ensures that your retirement savings will last.
The hardest thing about geoarbitrage is moving away from friends and family. I’m not going to lie and tell you that it will be easy, it’s not. Yes, technology has made it easier. We can face time, talk on the phone, and text; but none of those things is the same as being there.
I’ve been away from my family in Chicago for over ten years, and I miss them every day. I’d love to be able to go to all of my niece and nephew’s birthday parties, see them for the holidays, and just do everyday things with them. But I can’t, because I live too far away.
It was even harder to move away from Los Angeles. The friends I made there will be my best friends for the rest of my life, I’m sure of that. We’ve already visited each other quite a few times. But I miss being able to go to my bestie’s house for a video game night, and I miss listening to my sister’s mental gymnastics over our favorite strawberry lambic. I miss the ethnic food nights, the weekend get-aways, and the random happy hours. These are the things that you have to give up when you move away, and it sucks.
One thing that people often don’t discuss when telling people that they should move to save money is childcare. Sometimes, people with young children literally can’t afford to move. They rely on grandparents, aunts, and uncles to help them with childcare while they are working, and they need that social safety net nearby.
These folks can, however, consider geoarbitrage as part of their retirement plan. When the kids are old enough to not need constant care, they can reconsider whether geoarbitrage is right.
Moving sucks. I mean really, it’s awful. I’ve moved twice in less than two years, and it’s freaking miserable. Packing, cleaning, and transferring services are all a giant nightmare. But finding a new place to live and deciding what to do with your old place can be even worse. If you rent, you have to worry about breaking a lease or moving at the right time, and if you own, you have to decide whether to sell it or rent it. All that stuff is crazy stressful and time-consuming.
But it’s also expensive! No matter how you look at it, moving long-distance is going to cost you. Even if you pack your own stuff and use a U-Haul you’re looking at over $1000. Pods, storage, and moving companies cost even more. Then you have to pay all the fees of either buying or renting a new place – and good luck finding one if you have pets!
After all that, you also still have to pay security deposits, first/last month rents, and pet fees if you are renting; and closing costs and down payments if you are buying. Whatever way you look at it, a big move is expensive.
Many places outside of the United States are far cheaper than places in the US. A lot of people want to retire overseas to maximize their retirement income.
International destinations such as Costa Rica, Thailand, and even the Czech Republic are in high demand for retirees looking to make their nest eggs last.
However, you don’t necessarily need to be retired to take advantage of the low cost of these amazing places. Instead, you can freelance, work remotely, or even sign up to teach English in these places. Another option is to achieve financial freedom first, so you can work if you chose, but you can enjoy your time if you don’t want to work.
How Do I Start?
Embracing geoarbitrage takes some planning. The biggest question you need to ask is whether you want to do it pre or post-retirement. If you are considering it as part of your retirement planning, you probably don’t need to worry about jobs or childcare, which can make it a lot easier.
Next, you need to decide where you want to go. Knowing where you want to live will help you decide how much money you need to have in your retirement nest egg before moving.
If you will be moving prior to retirement, you need to have a plan for work. Does the area you are looking into have jobs available? Would making less money be worthwhile if you could save more? Can you make money other ways or pick up some side hustles? If you can’t find a job, what will you do about health insurance? These are all very important things to consider.
Finally, you need to make sure your finances are in order before you take the plunge. Start saving and budgeting for the big move. Spend less on things you don’t need now, so you can retire earlier and have enough savings for financial security when you are able to move.
So is Geoarbitrage Right for You?
Only you can decide whether geoarbitrage is right for you or not. It’s right for me because I want to decrease my costs as much as possible in order to achieve financial independence, and I’ve been fortunate enough to find good jobs in the cheaper areas. It’s also right for me because roots aren’t that important to me. Your situation and your values may differ. But hopefully, after learning about the pros and cons of geoarbitrage, you can make the right decision for yourself.
Some of you may have already taken the plunge and moved to a lower cost of living area. What has been your experience with geoarbitrage? Are there any pros or cons that I’m missing?
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.