If you want to save money, the proper geoarbitrage strategy is not moving to a developing country to save money. That’s too disruptive for most people. The proper geoarbitage strategy isn’t relocating to another state either.
Instead, the the best geoarbitrage strategy is to first look within your own city. This way, there is minimal disruption and maximum cost-savings benefits. You won’t have to take a salary hit either. You’ll be surprised how much money you can save by moving just a few short miles away.
Back in 2014, I moved five miles west in San Francisco and ended up saving 60% on living costs! Now, with the pandemic catalyzing more people move to the less dense side of San Francisco, prices are now going up faster.
My Desire To Geoarbitrage Eventually To Honolulu
One of the most common pushbacks I got from my post, “Why You Need To Earn $300,000 A Year To Live A Middle Class Lifestyle,” is: why the hell don’t I just leave expensive San Francisco if I’ve truly got enough passive income?
Believe me, I’ve been thinking about relocating out of San Francisco for years now. The high cost of living is high and it is getting more dense. The obsessive money culture is no longer appealing. Finally, I’d like to mix things up after living here since 2001.
My number one geoarbitrage destination is Honolulu, Hawaii, a place where stress simply melts away. My stress level averages about a 5 out of 10 in San Francisco. However, it immediately goes down to a steady state 3 when I’m in Hawaii.
Honolulu Is Cheaper Than San Francisco
Although Honolulu isn’t cheap, it’s about 20% – 30% cheaper than San Francisco in terms of housing. If you can save money and have nicer climate, that’s a win in my book.
But relocating takes time when you’ve grown accustomed to living in one place for so long. There are friends to say goodbye to and assets to unwind. Then there’s the small, but highly significant issue of raising a first child.
We figure we’d provide our daughter with a stable home environment up until she is three years old. At that time, we will then consider relocating for preschool. Our son will be five and can also apply to kindergarten.
Geoarbitrage Already Happened
When people think of geoarbitrage, people tend to think in extremes. Moving to the heartland or to Southeast Asia or Eastern Europe to save big bucks on living expenses is common. The reality is, such big moves are not necessary.
One can simply geoarbitrage within one’s own town or city to save lots of money.
By moving out of our single-family home on the north end of San Francisco in 2014, renting it out, and buying a single family home just three miles west allowed us to save roughly $4,200 a month, or 50%.
I don’t know about you, but when you and your partner don’t have stable jobs, saving $50,000 a year after-tax sure alleviates a lot of financial pressure.
We’ve been hearing so much about a housing affordability crisis in cities like San Francisco and New York. Yet if people decided to not live in the most expensive parts of the city, their affordability would go way up!
For example, instead of paying $4,500 a month for a two-bedroom apartment in Pacific Heights, you could have a nice two-bedroom apartment in the Outer Richmond district for $2,700. A $1,800 a month cost savings is significant if your goal is to be financially secure ASAP.
Related: Housing Expense Guidelines For Financial Freedom
The Sacrifices Are Not That Big
Moving five miles west means being five miles further from downtown San Francisco, where most of the jobs are located. If we had to work downtown, the extra commute time would be 15 minutes on average each way.
15 minutes is nothing given we all have phones to nourish our minds with Financial Samurai articles. It is simply amazing how quickly we can kill time once we’re allowed to surf the web, listen to music, text with friends, play games, or watch some Netflix.
The cost to take the bus downtown from the north end where I used to live and the Muni downtown from the west side where I currently reside costs the same $2.5 each way, or $78 for a monthly commuter pass. Meanwhile, the invention of Uber pool and Lyft Line has lowered car service by 60-70%.
Further, if you move to a less densely populated area, there are benefits such as less traffic, less litter, less crime, more diversity, more parks, and cheaper goods and services.
Pandemic Accelerates Geoarbitrage To Cheaper Neighborhoods
Of course, once the pandemic hit, living out west became even more attractive. The demand for real estate in the less dense side of San Francisco is hot. I even rented out one of my rental properties to a family of four for $6,550/month. In the past, I would never be able to land the unicorn tenant: a family. It was always just four housemates, which required a lot more work.
Where I live, you can get a haircut for $12 pre-tip and eat a nice dinner for $15 a person. Where I used to live, the same haircut costs $26 pre-tip. Further, you’d never be able to escape a restaurant for under $30 a person.
Don’t Let Your Ego Get In The Way
If you want to accelerate your path to financial freedom, you’ve got to squash your ego for that big fancy house in a prime neighborhood. You might also have to even relinquish your desire to live in an international city like Washington D.C. or Los Angeles.
During my late 20s, I felt I needed to live in the best neighborhoods. After all, that’s where all my colleagues lived. It was a similar pressure to buying nicer clothes than I was accustomed to, to look the part.
But once I extricated myself from the workplace, there was no longer any peer pressure. Sure, living in a fancy neighborhood was nice, but I wanted a change of scenery 13 years later.
Lowering my housing expenses by 50% since 2014 while concurrently growing my passive income by 50% in the same time period has done wonders for our financials.
Our monthly cost to live has now plummeted to well below 5% of our gross income as a result. Growing this gap is the key to financial freedom.
We used to feel a little guilty being away from our house for more than two weeks. That meant we were paying double living costs for that particular time period. Nowadays, our housing costs can hardly be felt, so we feel much freer.
Geoarbitrage is great for getting F You Money as well! Once you have F You money, you are more free to live your life that way you want.
No Need To Feel Embarrassed Living Farther Away
Some people used to arrogantly tell me, “Wow, you live so far away from downtown,” I think to myself: are you really justifying paying a premium in rent or purchase price just so you can live closer to work to work longer? You mindless fool!
Of course, I played dumb, nodded and told them it must be nice to live so much closer to work.
Now, there are less location snobs due to the pandemic. In fact, people who live farther away from downtown can now display reverse snobbery! I can’t believe you live downtown when downtown is dead!
The best near-term real estate opportunity is buying in the less dense parts of your city. It is no longer “embarrassing” to live far away from downtown. Instead, it’s very logical and smart given we no longer need to commute as much.
Start Small, Work Your Geoarbitrage Way Up
It’s always good to start small when testing new things. Instead of relocating to a different country, try relocating to a different part of your city first. This is the best geoarbitrage strategy, especially if you have kids.
Once you understand the challenges and get comfortable with the new environment, then consider relocating to a cheaper part of the country. If living in a cheaper part of the country isn’t enough, then you can rip off the band-aid and go international.
The last thing you want to do is uproot your entire life in a completely new environment and feel like you made a mistake.
One family of five I know paid $200,000+ in real estate commission fees to sell their house in order to relocate to Florida where the wife’s family is from.
They ended up hating Florida because their adopted kids from Africa were being bullied and they are white. So they decided to move back to San Francisco seven months later. They then bought and remodeled a new house for multiple millions!
Try before you buy folks. Some of the cheapest cities in America are also some of the unhappiest. After all, there’s a reason why the median home price for some cities are so low. Weather, culture, and economic opportunity have a lot to do with how livable a city is.
Moving Within Your City Is Great
Being able to work from home definitely helps with geoarbitrage no doubt. The global pandemic has certainly helped accelerate this trend.
But even if you had to go to an office with bright fluorescent lights that burn your skin and accelerate your aging process by 20%, having to commute an extra 10-30 minutes each way to save big bucks isn’t much of a sacrifice.
Instead, it’s a blessing to be able to enjoy your same city and breathe in the same fresh air while saving so much money every day. Once we moved to the less dense, west-side of San Francisco, we got excited again. There were new parks and museums to enjoy. New restaurants to eat at. And new types of people to meet.
If you think you deserve to live in the best area, then be happy paying higher prices. If you aren’t happy with the cost, please relocate to a different part of town.
Nobody is saying you need to move to polar vortex country to achieve financial independence! In fact, once the pandemic is over, I bet there will be a lot of people looking to reverse-geoarbitrage back to coastal cities and states like California.
After all, people go where the weather is best and the job opportunities are the greatest.
If you’re interested in making a big change, you can check out a post by a reader who international arbitraged to Panama.
A Smart Way To Invest In Geoarbitrage
Geoarbitrage is a trend that’s going to continue for decades to come. The pandemic has ensured a permanently flexible way of working. Therefore, expect to see a continued net migration to lower cost parts of the country.
For example, huge companies like Google and Apple are spending billions buying up heartland real estate for a reason. As a result, job opportunities will follow. Once borders open up, I’m confident there will be a flood of foreign investors buying up U.S. real estate. Therefore, it’s best Americans buy up our own real estate first!
The best way I know how to take advantage of the geoarbitrage trend is through real estate crowdfunding. Real estate crowdfunding is a way to invest in real estate across the country in a cost-efficient and easier manner.
Instead of taking on concentration risk by buying the entire building, you can wisely own a portion of the building in a city like Austin or Charleston to diversify your portfolio.
The Best Real Estate Platforms
Check out Fundrise, one of the pioneers in real estate crowdfunding today. Their comprehensive platform is free to sign up and look around. I believe Fundrise is the best platform for non-accredited investors given it has eFunds to provide investors exposure and diversification. Fundrise has over 300,000 investors and manages over $3 billion in assets.
Also check out CrowdStreet, my favorite real estate crowdfunding platform for accredited investors. CrowdStreet’s focuses specifically on 18-hour cities, those cities that are less expensive, but faster growing. 18-hour cities should benefit most from the long-term geoarbitrage trend. CrowdStreet is also free to sign up and explore.
I’ve personally invested $810,000 in 18 real estate crowdfunding deals to take advantage of demographic trends and cheaper valuations in the heartland. As a father of two young children, it is really nice to earn income 100% passively. Below is my latest private real estate dashboard.
For more nuanced personal finance content, join 55,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience. The Proper Geoarbitrage Strategy is a FS original post.
America is cheaper than southeast Asia for most things:
Education (free in the US)
The idea that you save money moving to southeast Asia is a joke. You save if you go from living in a nice air conditioned apartment and driving a car to living in a hovel and riding a bicycle but that’s the same anywhere!
Living the same exact standard in Ohio is much cheaper than Phnom Penh or Bangkok.
Nhuan Lieu says
Hmmm, have you been to SE ASia? Apprently not since i can debunked these items is cheaper and faster there than in mots US cities
Internet connection – $10-20/month
Education (free in the US) – no property taxes in many countries, so is not “free” in the US
Phones – Bring from the USA
Computers – Bring from the USA
Processed foods – is a good thing since it better/cheaper with UNProcessed & fresher foods
You didn’t debunk any of what he said. I pay close to $100 in SEA to get average internet and all of the other items he listed are spot on too.
Having lived in Asia, I’d say it definitely depends on your lifestyle. If you want to live in an apartment, don’t care too much about how big it is, in a convenient area and are happy to use public transit, your cost of living is WAY cheaper in SEA.
If you eat out a lot, it’s also cheaper in SEA.
Eating at home is a crapshoot. Cheese and beef are typically (much) more expensive in Asia. Most other foods are somewhat cheaper.
Cars are much more expensive, as are utilities. Landed houses are cheaper but not dramatically cheaper.
So if you want to live a typical suburban lifestyle, cooking your own meals, living in a big house with a good amount of land, eating a lot of burgers, and driving everywhere — your cost differences won’t be that much, and could even favor America.
On the other hand, if you’re happy in an apartment, using public transit, and eating chicken and rice out of the house, you’re going to have a dramatically cheaper lifestyle in Asia.
I, personally, was somewhere in between (lived in an apartment, but ate a lot of steak cooked at home), and ended up having about the same cost of living in Asia as I did in America. My overall material quality of life in Asia was probably slightly higher at the same cost, but I felt pretty isolated. I’ve moved back and working non-remotely in America has increased my income to the point where there’s absolutely no way I could match it in Asia.
I just listened to your most recent podcast episode with your wife. If you want my 2 cents, I think she wins this argument to go to Hawaii. I hear and understand your points about Virginia and it potentially giving your son more opportunities to face adversity. However, your wife seems adamantly opposed to it. I’m not married nor do I have kids so maybe I’m not qualified to have an opinion on this but I do ;-)
My gut tells me that you’ll want to go somewhere you both like. It seems like you do not dislike Hawaii as much as your wife dislikes Va and as a matter of fact, you seem to love Hawaii. You’ll just have to not make it too easy on your kid (i.e enforcing him to get a job when he is able and having him contribute to the financial samurai household expenses). Just some thoughts from little ole me…
There is no chance you are travelling 5 miles through a city in 15 minutes. You will spend at least 15 minutes stopping at traffic lights/bus stops and another 30-45 minutes sitting in traffic. Best case scenario is riding an E-scooter ignoring traffic laws averaging 5-10 MPH. My two mile commute in DC can be done in 20 minutes by car, 15 minutes by scooter or bike, or 40 minutes walking.
Driving/ riding the bus for 5 miles through the heart of SF at rush hour will take 1 hour+. Losing 2 hours of time per day commuting is a loss of $200-$500 per day per couple.
Financial Samurai says
Guess we have different experiences. The muni train, when on schedule, will take 15 min or less to travel 5 miles.
How long have you lived in San Francisco and how has your scooter experience been?
Hi Sam – I do not live in SF, but have visited several times and am frequently in major cities across the country. My daily 2 mile commute in DC cannot be done in less than 15 minutes by any mode of transportation. A 5 mile commute in DC (or any major city) would be very difficult to do in less than 40 minutes. 5 miles in 15 minutes door-to-door to downtown is absolutely impossible in any major city.
We had a similar logic to you in terms of not overpaying to live in a trendy neighborhood. Our goal was to buy the cheapest rowhome within 1-2 miles of downtown because it would be impossible to keep commuting time to less than 20 minutes each way if we moved any further away. Saving 1-2 hours per day per couple in commuting time is the equivalent of saving $1,000’s per month in gained productivity and reduced commuting expenses. Downtown is more expensive because there is a real cost to longer commute times. Commuting longer than 20 minutes for 10+ years will have a devasting impact on your health, finances, and overall quality of life.
You decision was obviously swayed because your family no longer had to be in core downtown on a daily basis so why pay the premium? But i think your analysis is incorrect for commuters because you are heavily discounting the time is takes to commute door-to-door in a city at rush hour.
Geoarbitrage is brilliant on paper, but finding a high quality of living area with good schools at a relatively low cost is virtually impossible in America. Affordability=Low quality of living and/or sub-optimal schools. High quality of living areas with good schools are all prohibitively expensive. I suspect that major cities and high quality of living areas are all now significantly overvalued for several reasons including the fact that my family cannot afford to live within even 5 miles of a major city at this point on $250K per year. Which isn’t a lot of money, but certainly should be enough if we are earning close to 2-4 median income in every city except SF.
I think Seattle, SF, NYC, DC, Denver, Boston, LA, and Austin real estate could all go down 15-20% over the next 5 years. We are sitting heavily in fixed income/cash right now praying for either a stock market crash or a Socal real estate crash to make our exit from the overpriced and low quality of living Northeast.
try maryville tn
Question for you: How do you define geoarbitrage versus just choosing a lower cost of living? What is the difference in your view, if any?
To me, it seems like moving from the expensive side to the cheaper side of the same city while still doing the same job is not geoarbitrage — it’s just spending less on housing. On the other hand, geoarbitrage is more like choosing a career or job that allows for unusually high income at unusually low cost of living, where you are arbitraging some sort of fundamental mispricing in the labor and/or housing markets.
Blogging while living in the heartland seems like geoarbitrage, whereas moving to west SF seems more like lowering the cost of living but not geoarbitrage.
Would love your thoughts. Just brainstorming here…!