I was into geoarbitrage before I even knew there a 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. Read on to find out if doing something similar is right for you.
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. Many people embrace geoarbitrage when they retire– heading to exotic locals such as Costa Rica, Thailand, or even the Czech Republic – where their nest eggs will last a whole lot longer. Others, such as myself, embrace the concept before retirement – finding cities with available jobs (or focusing on working remotely) and a low cost of living. The “when” of geoarbitrage doesn’t really matter, the important thing is moving someplace cheaper.
What Are the Advantages of Geoarbitrage
The biggest benefit of geoarbitrage is the copious amounts of money that you can save. 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 move again. The actual moving is expensive, but now I own two houses – the one I live in mortgage free, and an investment property in Savannah. I would never have been able to afford an investment property if I hadn’t moved to save money!
Buying a Home
Unfortunately, houses are just not affordable in some of the hottest US markets. Home ownership is out of reach. 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 is Savannah is just $111 per square foot. You can buy a decent house for in that city for less than $200000. That’s way more affordable! And there are cheaper options available. There 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 independence but think it’s out of reach due to home prices, consider geoarbitrage.
A lot of people chose to geoarbitrage to states like Texas or Florida that don’t have state income taxes. 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 less 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. Bye-Bye 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, with a hopping down town scene but 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 in walking distance! You can’t get that in any city for 52K!
Are There Any Disadvantages to Geoarbitrage?
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.
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.
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 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.
So is Geoarbitrage right for me?
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 you.
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.