International And Domestic Geo Arbitrage Strategy: Critical Decision Points

In finance the term “arbitrage” fills hearts with hope and joy, signaling the potential for profit with little risk.

Pure arbitrage allows traders to buy and sell an asset in different markets and make money off the difference. In practice, the term gets used a bit more loosely. Arbitrage trades can refer to profiting off low risk trades, usually where you are trading similar assets.

Geographical arbitrage, or Geoarbitrage, means increasing your net savings based on your choice of a home base. For example, digital marketers may have the flexibility to work from anywhere with essentially the same revenue.

Imagine for a moment if you knew how to make millions off of a Youtube channel that can be filmed anywhere. Craft your cost of living carefully, by choosing a cheaper location, and you could save most of that money made.

Geoarbitrage is one of the primary monetary benefits of being location independent. Those looking to be financially independent and retire early absolutely crave these opportunities.

Strategy

Choosing where to move, if it's a choice, can become rather complex. Sometimes having too much choice can be a source of stress as well.

Criteria – Figure out what's truly important first. Do you care about the size of the apartment as much as the location? Are you willing to walk alot or do you need public transport? Narrowing down prospective destinations on these criteria will help you get a sense of priorities. Keep in mind these can change, but figuring out what's important to you in the moment makes that decision tree a bit less daunting. Ideally you can come up with a flow chart to apply to your moves, especially if you plan on moving regularly.

Map Prospective Destinations – Within the US, Niche provides a few “Best of” lists like “Best Places To Raise A Family” and “Best Places To Retire”. Digital nomad facebook groups or forums often offer advice on nomad hubs that are affordable but have an entrepreneurial community.

Write it down. It's tempting to keep all of this in your head, but writing out the process not only makes it less overwhelming, but will force you to be clearer about what's actually important to you.

Do a quantitative and qualitative comparison of prospective places. If you can come up with a scoring system and rate your choices, weighted based on importance, you may have another way to make sense of the options. At the end of the day everything is a judgement call. Caveat, I once tried to score a job option vs working from home, and wound up with the exact same score! Don't be me.

Ask your intuition. Sometimes we already know the answer, but our logical brain gets in the way. Explore your hangups and reservations and see what comes through intuitively.

Discuss with your partner. If you're doing this as a family, you need to map your priorities together. Try to simplify the discussion and bounce ideas off each other. My partner is often my mirror and gives me greater insight into what I ultimately want.

Criteria

• Location – Urban vs suburban, high floor vs low floor, house with a yard, or townhouse with low maintenance. If you have kids it'd be nice to be near a playground. Bonus points if there's a pool in the community.
• Transportation – Do you enjoy driving, either in a city or suburb? Is public transportation or Ubers/Lyft available? If you would like a walkable area, many real estate sites like Redfin post a walkability score.
• Living Space – Layout may be almost as important as size. After living in HK I now know that 2 adults can live in a 330 sqr foot, 2 bedroom apartment and still decide to have a family. Is a guest bedroom or office necessary?
• Community – Is it an area where you're likely to meet neighbors or find play dates for your kids? Niche provides an overall look at neighborhood safety, schools, housing prices, diversity, and even nightlife.
• Daycare/Schools – Daycare options range from institutions to home based daycares and may require some research on local parenting groups. Abroad there are also typically government sponsored and subsidized daycare as well as private institutions. For school age kids, are you in a district that suits you?
• Food – How well does the local cuisine and produce availability match up to your requirements? In every country my menu has changed. If I wanted to stick to eating the same types of food I'd be spending alot more. For example, tofu and tofu based products are cheaper and abundant in Asia, so tofu dishes would be more common there than say Mexican dishes.
• Household Amenities – Many homes in Asia are not commonly equipped with a dryer, which can be a real pain for laundry. Hanging bedsheets becomes an attack on personal space in a small apartment. The country you choose may unexpectedly lack amenities you've become used to.
• Online Shopping Availability – Korea was one of the most convenient countries for online shopping, (mostly with a local credit card, which requires local residency). The landscape of online retail can be vastly different for different cities and countries. For example I would venture to guess grocery services like Instacart are not available in many rural areas in the US.
• Career – Hopefully your location independent business can thrive almost anywhere, but even for digital entrepreneurs, there are hubs that access a broader network and offer better lead generation for business. The pay scale for typical jobs or consulting work is going to vary as well, so if your income is more location based, know that in minimizing your expenses you could also be giving up opportunities.

• Language – Going abroad may not mean landing in a place that speaks your native language. Are you prepared to be lost in translation?
• Pricing – Living costs around the world can vary dramatically, particularly for families. Understanding your tradeoffs generally comes with a specific price tag.
• Taxes – American citizens get taxed globally no matter where they go, so costs are going to be a bit higher. The first ~$90k is exempt in the form of foreign earned income credit though, so moving abroad still offers a tax break.
• Weather – Climate has an impact on the outdoor lifestyle you can live. It also can affect your mood.
• Healthcare – While affordable healthcare in the US is generally a nightmare, most developed countries have great public systems that won't put you in bankruptcy like the American system can. You may even need to consider whether you would have a baby in your destination of choice.
• Experience – Living in a different environment can be full of new surprises you won't be able to plot out, some welcome and some not so pleasant. I figured living in Korea was not ideal long term because of cultural differences and my lack of language fluency. But the experience was far more powerful than the (ultimately temporary) discomfort. It helped me understand my husband and married family a bit better, and how do you put a price tag on that?

Determining Your Arbitrage

Putting together budgets for each destination is probably the easiest form of geographical arbitrage. Pull up the number estimates from Numbeo or Nomadlist and you have an easy comparison if you're just looking to save money.

If a shack in a developing country still meets most of your criteria, than yes you can truly minimize that expense line.

We're never as good at understanding qualitative tradeoffs. Even in an extreme pursuit of financial freedom, know where your dealbreakers are.

Personally, I want to live a lifestyle worth living. Having a child also means I'm willing to pay more for time and convenience that previously did not matter.

What trade offs are you willing to live with?