What is geo-arbitrage?
It is a compound word for geography and arbitrage.
By definition it is taking advantage of two markets, living in one but taking advantage of the price difference between the two. There are entire reddit posts about it.
More specifically, it is having an income from a country with a strong currency and living in a cheaper country. Many examples are Mexico, Malaysia, for a full list provided by U.S. News click here. However, the goal is to keep that steady stream of income, either by living a digital nomadic life or through various investments. Investments could mean a rental housing portfolio, stocks and dividends.
How is it applied?
Optimizing your income by moving to a LCOL area
This can be applied in many ways, either domestically or internationally. For instance, you can live in one state and have rental properties in another state. A popular example is living in a cheaper state/country, but have income from the more expensive country.
Optimizing where you register your business
You can have your business registered in a state were there are optimal taxes. Speak to an accountant or tax professional for more advice.
Lowering your taxes
Another example is to move to an area with low or no income taxes. There are several U.S. states that do not have income taxes, however, the property taxes generally make up for that loss. I have heard stories from friends who have moved from a state with no income taxes to a state with income taxes. There was an initial sticker shock because they were technically earning the same salary, however, their net income decreased. These additional taxes meant less money available to invest, save, pay off debt, thereby adding years to financial goals. So, if you can move to a state with no income taxes, you can shave years off your career and your financial goals.
It does not have to be just moving states, sometimes it could be moving to the next county, so you can lower your overall taxes and your cost of living.
Other blog posts that are not on geo-arbitrage
My story
I live in Sweden, already one of the most expensive places to live. Not exactly a great way to do geo-arbitrage but unfortunately I have to live locally for my job. To combat this, I moved to a different municipality. So, I was living and working in Stockholm. An interesting thing is that, in Sweden, your income taxes are based on the municipality that you live in and not where you work. So I moved to the neighboring one and my tax bill lowered a couple of percentage points. This means I get a few extra hundred krona a month by living in a different area but still working in the same place.
This is just one form of geo-arbitrage.
Another form of geo-arbitrage is I co-operate a Poshmark page. I do not live in the US but the other person does, they take photos of the items we are selling and mails sold items. From Sweden I create and update listing as well as speak to any customers. I do not see or touch any of the items that are being sold, which is similar to the virtual assistants that I see online. We both shop our closets, and it is amazing how many items we owned that are still new with tags (NWT).
This should tell you about the credit card debt that we once had.
Now that I am in Sweden I do another form of reselling that I used to do back in the U.S. It is picking up products that have been dumped and reselling them. These are free items and it turned a 100 % profit because I paid nothing for them.
How to determine how much you need to live
This depends on the country you want to go to and the lifestyle you want to keep. According to the AARP, the average social security income is $1543 a month. This is considered poverty wages in many parts of the U.S., this means that if you do not have additional retirement savings that you will not be able to live a full-life.
However, this amount can lead to a modest life in many other countries for instance, take a look at Popoli, Italy. The area has had an exodus of people moving to larger cities which means that property values have fallen, so you might be able to snag a nice home for a fraction of the cost. In addition, who wouldn’t want to be close to wine vineyards?