Ultimate Geoarbitrage Strategy
What is Geoarbitrage?
Geoarbitrage involves moving to a place with a lower cost of living while keeping the same level of income.
This could be income from self-employment, retirement income, or a traditional job transfer. Lowing the cost of living means it’s easier to make that income stretch farther.
Geoarbitrage can bring financial freedom and independence sooner. Saving money by relocating to a place with a lower cost of living means you free up more time needed to earn money.
More time for the people and things you love can increase your quality of life.
It’s worth noting that you don’t have to relocate permanently. Even moving somewhere for a few years to increase your savings rate can have a massive impact on your finances and your life.
When this is done earlier in your career, the compounding of those extra savings will bring you more freedom later in life.
Nomad List has put together a geoarbitrage calculator to highlight how early you can retire if you move to another place. The numbers may surprise you!
Types of Geoarbitrage
When you read about geoarbitrage, a common strategy involves moving from the United States to an international destination.
The lower cost of living and affordable health care options in other countries make living abroad an enticing financial choice for anyone with location independence.
One couple (Nic and Court at Modern FImily) moved from Florida to Canada to start a family and retire in their thirties. Canada’s family-friendly policies regarding extended parental leave, health insurance, college, and even child tax credits can be a big boost to young families looking to work less.
Within the United States, moving from state to state can shave years off your career by optimizing or eliminating state income taxes.
For example, Florida has no state income taxes (they derive their tax base from the tourism economy). Moving across state lines can free up a lot of money in your monthly budget.
Geoarbitrage can be as simple as moving a few miles down the road to lower your property taxes, moving to another country to lower your expenses, or even traveling forever to live outside of inflation.
If you’re currently living inside city limits, relocating to the county can save thousands a year on this fixed expense. If you’re not a homeowner, these savings would be realized in the form of lower monthly rent.
My husband and I met in graduate school in California. We were both from the Southeastern corner of the United States, and the high cost of living in the San Francisco Bay area was a shock to the system.
When it came time to apply for our first full-time professional jobs, we made a list of the pros and cons of California compared to Florida.
Based on the lifestyle that we wanted (starting a family, owning a home, enjoying larger paychecks due to no state income taxes), we began our careers in Orlando.
We stayed in Orlando for eight years. During this time, we paid off all of our debts (including credit cards, car payments, student loans, and our first mortgage).
We were able to max out our retirement contributions each year and invest extra for our future.
I started my own freelance engineering business which was entirely online and began working from home full time.
Our financial freedom enabled my husband to leave his full-time job and become a stay at home dad while launching his own remote consulting business.
By moving to Florida, we used geoarbitrage to gain more financial freedom. That financial freedom allowed us to take more risks in our careers and start location-independent businesses. Once we weren’t tied to Florida for jobs, we began looking into our next move.
We wanted to leave the big city and the heat, so we researched small mountain towns with access to nature and great schools for our daughter.
Our first trip was to Saluda, North Carolina. We took a long weekend to visit and explore the natural surroundings as well as the neighborhoods and schools.
However, we learned that Saluda was too small for our liking. The need to get on an interstate highway to go grocery shopping left us feeling like the town was too remote for our growing family. We turned our search to the west coast to our runner-up in Ashland, Oregon.
We first visited Oregon in the summer with a trip to Crater Lake National Park. The air was clear, and we had no idea of the impending wildfire smoke that would impact our lives over the next two years.
After visiting southern Oregon during three different seasons (summer, autumn, and winter), we decided to move there.
After living in Oregon for two years, the cost of living caught up with us. Running two small businesses and raising a kid in a high cost of living area was exhausting, and we wanted more downtime.
The high state income taxes, high housing costs, and property taxes, regulatory barriers for business owners and increased travel costs to visit family were impacting our quality of life as freelancers.
As business owners, tax optimization was at the top of our minds. To reduce our largest household expense, we knew moving back to a state without income taxes would be the biggest bang for our buck.
This led us to look at Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, Florida, New Hampshire and Tennessee (which had recently phased out state income taxes).
Our criteria for our next hometown included the following:
- Close proximity to a public university (for our daughter to attend while living at home)
- Lower housing prices than southern Oregon
- Skiing within an hour’s drive
- Safe neighborhood (i.e. I felt comfortable going into Walmart alone after dark)
- No estate taxes
Based on these criteria, we could remove Washington, South Dakota, Texas, Florida and New Hampshire from our list.
During the spring of 2019, we visited Alaska, Nevada, Tennessee, and Wyoming. Wyoming was the last place on our list to visit, and it’s where we now live.
Things to Consider when Comparing Locations
When deciding where to live, it’s important to closely examine what is important to you. Here are some questions to get you started.
- If you have children, what types of educational opportunities might they seek?
- What type of natural surroundings do you seek? Do you picture yourself hitting the ski slopes, learning how to surf, or enjoying city parks and green spaces?
- What’s your entertainment style? Do you need to be in a city with mainstream concerts, free family activities, or is stargazing more your speed?
- Do you have extended family you’d like to visit, and how often?
- If you travel often, do you need to be close to a major airport?
- What activities do you do now that you’d like to do more of in your new location? What would you like to eliminate from your daily life in a new location?
- What sort of cultural environment are you seeking?
For our family, we wanted more hiking and outdoor recreation opportunities. We also needed to be a direct flight from our family. Our two-hour drive to the Denver international airport turned out to be a good compromise.
Cost of Living Index
When you’re building your budget for your new hometown, you can compare the cost of living index to the typical US Household using this expense calculator.
These calculations will help you get an estimate of your “FI Number”, i.e. the amount you need to have invested to support your cost of living.
By exploring different locations with various costs of living, the size of your nest egg can grow or shrink substantially!
For many workers and business owners, taxes are the largest household expense. Moving to a state without income taxes can shave years off your career and bring you financial freedom faster.
As of 2020, the states without income tax include:
- South Dakota
- New Hampshire
For readers interested in moving abroad to save on taxes, there are a few noteworthy tax strategies in place in 2020.
For example, did you know that Portugal offers ten years without taxes through their “Golden Visa” program?
Additionally, for US expats living and working abroad, the Foreign Earned Income Exclusion (FEIE) allows you to exclude up to $100,000 of earned income from US taxation.
This was the spark that initially led me to research moving abroad for our location-independent working years, and I recommend it to readers who are more adventurous than us (i.e. those who don’t have school-aged children).
When investigating your next hometown, you can use Healthcare.gov to explore prices in those areas based on your planned income level.
Health sharing ministries are a popular option in the location-independent community due to the fact that these plans are low-cost and flexible with providers across state lines.
However, these programs are allowed to exclude coverage for pre-existing conditions, which means they will not be a viable option for everyone.
If you’re still a W-2 employee (i.e. a telecommuter), you may be able to keep your employer’s health insurance plan. The options may change when you move to a different state, so check with your benefits provider to see any coverage issues.
If you’re looking to move outside of the United States for geoarbitrage, World Nomads offers travel insurance. Travel insurance includes coverage for overseas medical and other services.
Since housing is typically one of the highest expenses in any household budget, this is usually the first thing I research when looking at new hometowns.
The proliferation of sites like Apartment Finder and Zillow has made it easy to research housing prices before moving.
Use these resources to your advantage to find your optimal housing situation within your new budget.
The next largest expense category to tackle is transportation. When you’re looking at a new hometown, ask yourself the following questions:
- Will you need a car there? Or could you move to a walkable neighborhood and delete this expense entirely?
- Will you need to connect at a major airport to visit family or travel for business/vacations?
- Is public transportation available and effective?
- Is bicycle infrastructure available?
- Are there toll roads? Adding $100/month for commuting tolls can quickly diminish your savings from moving.
By designing your lifestyle in your new hometown to minimize the use of automobile transportation, you can realize even more savings.
Another rarely mentioned benefit of geoarbitrage relates to families sending their children to college.
Since state financial aid programs vary significantly, you could find major savings here by researching in-state scholarships.
For example, the in-state scholarship program in Wyoming provides much more financial assistance than Oregon or Florida for a student with a similar academic record.
If you’re moving to a new hometown with an in-state university, consider moving close enough to campus that your children can live and eat at home. The savings on room and board add up quickly!
The Importance of Visiting a New Location
I can’t state enough the importance of visiting your new hometown before moving. There is just so much to learn about a place by experiencing it in person beforehand.
During our exploring phase, we visited Tennessee. The city had just had a record storm, and the roads were so flooded that portions of the city were inaccessible. You wouldn’t know that kind of information by browsing Zillow.
We also fell in love online with a small town in Tennessee that was perfect on paper. However, when we visited as a family, we discovered that the town was centered around a chemical plant and the outside air was noxious.
The air was so unbreathable that the chemical company actually donated a world-class recreation center to the city so the residents had an indoor place to escape the fumes.
We never would have known about these environmental concerns if we had not visited.
Before Your Visit
There are several things to consider before visiting your future hometowns to save money and time.
Use travel rewards miles and points for airfare and hotels. By planning your visits months in advance, you may be able to cover most of the cost of your trips with travel rewards.
Combine geoarbitrage exploratory trips with business trips. For example, if you need continuing education for your profession, try to find it in a place that you’re interested in living anyway. We attended an engineering conference in Alaska for this very reason!
Use school breaks to take road trips to nearby locations. Our school district allowed ten days of unexcused absences, and we used nine of them for geoarbitrage trips.
Follow the places on social media to get a feel for events, culture, and weather. I followed a dozen Wyoming Instagram accounts to learn how locals dress in sub-zero temperatures.
Research environmental concerns. This means reading online water quality reports (you don’t want to move to a new place and not be able to drink the tap water later).
One issue that came up in our research was radon (a gas that builds up in basements). This was new to us, so we included $1,300 for a radon mitigation system in the buying offer for our new house.
Make a list of things you want to see while you’re there and note the hours of operation. You don’t want to plan a trip and find out the main attraction was closed for renovation during your visit.
During Your Visit
Consider staying in an Airbnb inside a local resident’s house. We stayed in a basement apartment, and the upstairs host was a teacher in our current school district.
We were able to pick her brain on the ins and outs of the local public school system. You simply can’t get that kind of insider knowledge in a hotel!
Take time to live like a local and go to everyday places. In each town on our list, we explored the library, gym (we took fitness classes and swam in the community pools everywhere we went), movie theater, grocery store, consignment shop, and Walmart.
Schedule a visit at your kid’s potential school to shed light on online school ratings. This is another factor that can look entirely different online compared to in real life.
Take lots of notes and pictures, especially of homes that interest you. Make sure you note the names and phone numbers of realtors who are listing the homes you’d like to visit later.
After Your Visit
When you’ve returned home and unpacked from your trip, take time to go back through your notes. You can create a spreadsheet to list the areas you visited and the honest pros & cons of each place and how you FELT when you were there.
If any of your places were not ruled out with the first visit, plan to visit again in the off-season. This is especially important in an area with extreme weather like Florida in the summer or mountain towns in the winter.
Visiting Seattle, Washington in January helped us exclude it from our list, which we may not have done if we’d only visited in the summer.
Now that you’ve done your homework, it’s time to weigh your options and make a decision. Run the numbers on the cost savings between your current town and your new hometown. How much money will you save every month? Every year?
Using the 4% rule, how much will you reduce your retirement nest egg by lowering these expenses?
By moving from Oregon to Wyoming, we were able to lower our retirement number by $250,000.
This is what financial freedom feels like – shaving years off our careers to spend more time with loved ones.
Where will geoarbitrage take you?
- My Story
- Saving Strategies
- Financial Independence