If you have found yourself on this page you are most likely looking for an answer to the question: Should I Geoarbitrage?
Or perhaps you found yourself here wondering, what the heck is geoarbitrage?
Well for either question, you have come to the right place. This article will contain an in-depth guide to geoarbitrage. What it is, how to find the right location, and how to put your plan into action.
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What is Geoarbitrage?
Geoarbitrage (geographic arbitrage) is just a fancy word for relocating to a lower cost of living area, ideally while maintaining your current income. This would allow you to reap the benefits of spending less, while continuing to maintain a steady income stream.
Why would I Geoarbitrage?
This strategy is not for everyone.
But it has many benefits for those who are looking to reach financial independence.
It would also help those who want to be able to save more money or get out of debt. In addition, this strategy can benefit those who feel like they are throwing money out the window and spending too much on rent, a mortgage, or just to keep up with the Joneses.
By moving to a lower cost of living (LCOL) area, you set yourself up for a better financial situation.
Domestic Geoarbitrage vs. International Geoarbitrage
The two types of geoarbitrage are domestic and international.
When one thinks of geoarbitrage they usually picture a young couple who have moved to some exotic locale. They may be digital nomads, living it up in a foreign country, experiencing new cultures, eating amazing local food, and loving life.
But did you know that you can geoarbitrage right here in our own country?
Domestic geoarbitrage is not as uncommon as one may think. This can even include moving within your own state to decrease your cost of living.
Of course, there are a lot more people who think about doing it versus those who actually do.
But if geoarbitrage is something that really aligns with your values and your finances, then it is something that should be seriously considered.
Geoarbitrage Strategy: Things to Consider:
There are many factors to consider when making such a big decision on whether to geoarbitrage or not. Some factors are straightforward facts and others are more personal and based on individual circumstance.
Some considerations include:
Every state has their own tax laws and rates including income tax, property tax, sales tax, etc. If you are looking to relocate to a LCOL area, you should find out these numbers to see how they would factor into your expenses.
A great place to start is to consider states with no state income tax, which include:
4. South Dakota
New Hampshire currently does not have a tax on earned income but does tax investment income and interest.
Other low income tax states include Indiana (3.2%), North Dakota (2.9%), and Pennsylvania (3.0).
Why would state income tax be a big deal? There is a huge difference between paying 0% and 10%.
For example, someone who has an income of $100,000/year :
|State||Income Tax||1 Year||10 Years|
Another big factor to consider upon relocating is if you will have a change in employment and income. With geoarbitrage, you ideally would be able to keep the same (or higher) income when you move.
Some things to consider include if you are able to work from home with the same job.
A lot of companies nowadays are moving more towards remote work. So if you are able to keep your current job and move to a LCOL area then that would make the change much easier.
If you would have to change jobs, you would need to see if the location(s) that you are considering have employment options.
Another topic that falls under employment is commute time. If you will be commuting to work, how will this change and impact your life?
This is a big one.
When you geoarbitrage, you are looking for housing that fits within your financial plan. Moving to a LCOL location would typically mean that you get more bang for your buck in regards to housing.
So moving would ideally lower your housing cost and allow you to get more for your money.
This would be especially evident when moving from a High Cost Of Living (HCOL) area such as
San Jose or New York City.
School Systems & Higher Education
If you have a family and do not homeschool, then looking for a location that fits your child’s education needs would be something to consider.
If they are below college age, then you would want to scope out the school systems ratings. Of course, public school vs private school is a personal choice and running the numbers will help you to plan out your expenses.
If you have children who are nearing college age and they have decided to go that route, then you may also want to look into which states they may be interested in for attending college.
The difference between in state and out of state tuition can sometimes vary widely and may be something that would sway you to live in one state over another.
Do you need to be close to a major airport? Is having a car a priority? Do you want to find a bikeable and walkable community?
Assessing your transportation needs and wants will help you to narrow down your choices of places to geoarbitrage.
This is a very general but very important thing to consider when choosing a location.
What is your lifestyle like?
Are you an outdoorsy person who loves to hike, bike, and camp?
Do you need or want to be close to family?
Are you someone who loves that small hometown feel with a close knit community?
Or maybe you want acreage and to live off of the land.
This is not a question of what your lifestyle is right now but more a question of what you want your lifestyle to be.
Geoarbitrage can be seen as a way to “start over.” To find out exactly what you want in your life and to go after that.
Other points to deliberate when considering geoarbitrage
2. Cost of living – groceries, utilities, etc
How Geoarbitrage Can Help You Reach Financial Independence
The act of geoarbitrage is very in line with the goal of Financial Independence Retire Early.
It is a strategy that can help you to reach retirement faster.
Moving to a place that has a LCOL would give you a better chance to save money. The money that you are able to save would allow you to pay off debt faster and invest more.
Let’s go back to the example above of how much you would pay in state income tax and take that a step further.
Rather than seeing it as how much is spent, instead let’s look at it as how much can be earned if that money was invested.
What if that Pennsylvania resident moved to a non-income tax state. Instead of paying $5000/year they invest that money with a 7% annual return.
If they invest $5000/year for 10 years, instead of paying $50,000 they would have a balance of $83,754.
That scenario sounds a lot more appealing, doesn’t it?
**Check out Nerdwallet’s Compound Interest Calculator HERE
Besides the positive financial aspects of geoarbitrage, there are also the personal aspects.
You may find that moving may coincidentally bring you less stress, more time to do things that you enjoy, and give you an overall better quality of life.
I believe that all of these things coincide with having a goal of F.I.R.E. and obtaining these personal measures are equally important as reaching those financial goals.
What Are The Best Countries And States/Cities For Geoarbitrage?
As seen above, there are so many different factors for you to consider in your search for the perfect place. You want to find a location that checks off as many of your boxes as possible.
Finding a place that meets most of your requirements will take some research.
In our quest for the perfect location (and we feel like we will always be on this quest) we have come across a few international places that stick out and are on our radar. Factors that we have considered are cost of living, environment/culture, and expat communities.
These include: Portugal, Thailand, Costa Rica, and Panama
As for states and cities within the U.S., the best options, financially, would be to look into one of the states with no state income tax. But that is, of course, not the only reason to move somewhere. Finding the perfect location is highly personal and based on your needs.
What Are The First Steps To Geoarbitrage?
First you should know what your financial goals and objectives are. This will allow you to make sound decisions that are not all emotion based.
Then you should make a list of your location wants and needs.
Next, research, research, then research some more.
Lastly, please don’t just pick up and move. Visit the location(s) that you think may be a good fit for you. Rent an Airbnb and spend some time there to see if the environment and culture is a good fit for you.
Just because the numbers fit into your financial plan, doesn’t mean you will be happy there. Moving is a big decision and finding a place that is suitable for you, and not just your wallet, is important.
Our Geoarbitrage Story and Strategy
So we didn’t exactly geoarbitrage, in the true sense of the word. We kind of just found ourselves making strategic decisions from the start.
To tell you the truth, when we first started looking for a place to “settle down” we hadn’t even heard of the term geoarbitrage.
We made decisions based on what we felt aligned best with our values and finances at the time.
Prior to 2015 we had been working as travel therapists. We moved around the country every 3-6 months, taking contracts as an OT and PT. We loved it.
Living in new places, experiencing different locations, and meeting people from all over the country was exciting and kept life interesting.
We felt free and lively. But the one thing that was missing was the feeling of having a home. A place of our own.
Since we have lived in (or visited) almost every state in the U.S., you’d think that we would have a good idea of where we wanted to live. But we never lived in a place where we said “yes, this is it!”
So how did we end up where we are?
We love the Pacific Northwest. There are so many beautiful places here, amazing hiking trails, people are great, it’s laid back and just fits our lifestyle.
Also, the state of WA is a non-income tax state, which was something that we were looking for.
We happened to find a home that we could comfortably afford in a small quiet town.
Luckily as healthcare workers, jobs were readily available. We took full time jobs and had a bit of a commute to work, but it was an easy drive. And due to the remoteness of the town we live in, we found that our pay rates were higher.
Also due to location, we found ourselves spending less money on entertainment and more time outside as a family.
So instead of paying a lot in rent as travelers, we bought a house and took on a mortgage to build equity. We were also able to increase/keep our income.
Doing all of this allowed us to pay off our debts, save money, invest more, and drive up our net worth.
Do we plan on using this strategy in the future?
Yes! Now that we are on the path to FI, finance plays a role in decisions that we make daily.
We are constantly looking at real estate, all over the country, and keep in mind all of the considerations that are listed above.
So what’s on our checklist?
Final Thoughts on Geoarbitrage
The root of geoarbitrage is always the same: Moving in order to better your life in both a financial and personal way.
But the act of using geoarbitrage as a strategy will be different for everyone. We all have our own personal wants and needs and financial priorities and make decisions based on these factors.
Geoarbitrage is not for everyone but is a great option to explore.