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Anyone familiar with this blog knows that Im a big fan of geoarbitrage. In the words of the immortalChico Escuela, Geoarbitrage has ben berry, berry good to me.
But what if youre muddling along financially and you already live in a low-cost city or state? What if because of health issues, allegiance to family, or employment contraints you cant possibly take advantage of geoarbitrage? Are you screwed? Are you destined to live a life thats just one step removed from a paycheck-to-paycheck existence?
Not necessarily. What you lack in geographic mobility may be offset by a little pluck and daring. Let me explain.
Two of my favorite bloggers, Claudia and Garrett over atTwo Cup House, want what all self-respecting FIRE enthusiasts want: they want to be debt free and financially independent. One way to speed up the journey to debt freedom and financial independence is to dramatically lower your expenses while simultaneously maintaining or increasing your income. Hence my fondness for geoarbitrage. But because of Garretts job, he and Claudia are essentially chained to their bucolic corner of Pennsylvania. Geoarbitrage isnt an option.
But just because you cant leave a particular city or state doesnt mean you cant leave a particular housing arrangement. In other words, theres no law saying you must have 1,000 square feet of home for each occupant in your house. Two people dont need a 2,000 square foot home. They can perfectly manage in a home thats 1,000 square feet or less. Welcome to the world ofspatial arbitrage.
Claudia and Garrett are my favorite example of people who have taken advantage of spatial arbitrage. They remained in the same zip code but ditched their1,500 square foot home for a 536 square foot home. In one fell swoop they dramatically lowered their housing costs and their monthly expenses. Here are the results:
Mortgage free:In November of 2016, Claudia and Garrett made their last mortgage payment on their 536 square foot home.
Debt free:In March of 2017, Claudia and Garrett made their last student loan payment and became completely debt free. Just fifteen months earlier, in November of 2015, their total debt amounted to $240,352.35. Talk about the power of spatial arbitrage!
Financial independence:Claudia and Garrett are on target to be financially independent in May of 2019.
Claudia and Garrett have the world by the short hairs. Theyre in their early 30s, own their home outright, are completely debt free, and will be financial independent in less than two years. And this enviable state of affairs is largely due to spatial arbitrage. Claudia and Garrett realized that they could weaponizein a financial sensetheir willingness to forego the amount of square feet that conventional wisdom says they should live in. Fifteen hundred square feet hamstrung their quest for financial glory. Five hundred and thirty-six square feet catapulted it.
Make no mistake: allotting two hundred and sixty-eight square feet for each household occupant is not a recipe for nirvana. And to their credit, Claudia and Garrett are very upfront about the problems of going small. Seeherehere, andhere.
But if you can make peace with the various issues that inevitably accompany going small, and you can handle living kneecap to kneecap with other human beings (thanksChris Hogan), spatial arbitrage is a great way to turbocharge your quest for financial independence. Its also a great alternative for those who are duty-bound to live in their current zip code.
Okay, groovy freedomists, thats all I got. I find the notion of spatial arbitrage just as intriguing as geoarbitrage. And its something I hope to explore in future posts. But what say you? Is spatial arbitrage a legitimate alternative for those who cant take advantage of geoarbitrage? Or does downsizing and living in a confined spacedespite the obvious financial benefitsgive you the heebie-jeebies? Let me know what you think when you get a chance. Peace.
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Ive been following Claudia and Garrett for some time and they definitely have it figured out!
We downsized from 1900 square feet to 1100 square feet as a family of five and plan next to drop down to a 1000 square foot house that were building. With our plan, we should be able to build with a medium-sized mortgage and then aggressively pay it off in a few years.
All told, we should be mortgage free in a matter of a few years and on-track to hit financial independence in another 10 years or so (maybe a bit later if we decide to take another mini-retirement).
Spacial arbitrage is a great substitute and, Id argue, may end up providing you with more happiness as you find yourself spending less time cleaning and caring for the space you gave up 🙂
Spacial arbitrage is a great substitute and, Id argue, may end up providing you with more happiness as you find yourself spending less time cleaning and caring for the space you gave up.
Nailed it, Chris. I couldnt have summed up the glories of small living better. I love what you and Jaime are doing. In the olden days, 1,000 sq ft was suitable space for a family. Now its considered deprivation by many. Meh. Keeping on rocking, my friend.
My wife and I have been living in a ~300 SF 5th wheel in FL. Even though our age (combined) meet the 55+ restriction! You just have to think unconveniently, and try to make changes. I hear so many times oh I could never do that or I wish that was possible for me. Its a defeated mindset. If you want to do extraordinary things, you Have to be different. I plan too quit my job in Aug. 2020 at 33 when well be FI ;).
If you want to do extraordinary things, you HAVE to be different.
Amen, my brother. I dont know which is more impressive. Living in a 300 sq ft 5th wheel? Or being FI at age 33?
You got a keen mind and a great story, my friend. Why the hell arent you blogging? Youd be a perfect addition to our freakish cult of freakish money nerds.
I think another downsize is in the works, if Garrett gets his way. 😉
I love it, Claudia! Cant wait to read about your take on Spur, Texas. Hail the tiny house revolution!
Our summer cottage is less than 600 sq. ft. and while Id love a bigger bathroom in it, I think my husband and I could live there easily (if only it was winterized). However, with my stepson living with us part-time and my mom 6 months out of the year we need the bigger space for now.
Haha! I hear ya, Amy. Mrs. G and I are right there with you. Our problem is that I snore like an animal and we need at least two bedrooms for our marriage to survive. 900 sq ft is the probably the minimum for us. I guess the bottom line is this: going small isnt for everyone. But most of us probably have more space than we need. Balance is the key. Thanks for stopping by, Amy. I really appreciate your contribution.
Ive basically done this my whole life. Lived with my parents a few years, bought a 500 sq ft condo, now live in tiny cape cod. For each move, any smaller would not have been worth it but Im very happy I made the decisions that I did.
Nice, Jason. Going small gives one plenty of options. I wish I would have figured this out about 30 years ago. Would have saved myself a lot of heartache. Thanks for stopping by.
Read a great comment on buying a house with a spare bedroom for guests. Consider whether you ever have guests, and how long they stay for. Look at motel/hotel prices in your area. If it is the difference between a few hundred a year for motel rooms, or thousands and thousands of mortgage dollars for one extra room in the house, decide accordingly.
I like where youre going with this, Louise. Spatial arbitrage via AirBnB does present some interesting possibilities. But like you pointed out, you got to do your homework before you jump into anything. Thanks for stopping by.
This has always been my favorite way to keep costs down. When I bought my first place my Realtor talked me out of a studio and into a 1 bed. Naturally, for me to afford a 1 bed, I had to live in a location that was less than desirable for my 24-year-old self. A year later I sold and move to the cityinto a 400 sq ft studio. It has always had everything I need. If your space is efficient it doesnt matter the square footage. + it usually costs way less ( Claudia and Garrett found out!). Yeah for tiny living!!
When I met Mrs. Groovy, she was living in a 400 sq ft studio in Manhattan. And like you said, it had everything a normal adult needed to live comfortably. If I were working in Manhattan rather than Long Island when we got married, I would have had no problem calling that studio home. Thanks for proving the FIRE-related benefits of tiny living. A revolution is underfoot.
My studio was a rental (actually I lived in 3 different Manhattan studios, all rented for under $500/month. But thats another story).
There was a time in NY when buyers feared owning a studio because the resale value was not there. Everyone seemed to want at least a 1-bedroom. Then, there was an explosion of you guessed it Asian business folks who moved into Manhattan and bought property. And they didnt mind living in studio apartments. So now the studio condo (or co-op) purchase in NY has less of a stigma.
Weve never lived in a big house so I cant say that we have downsized living in our 900 sf place, but I can say that we feel no need to upsize. We could definitely go smaller still, but it is almost impossible to find something that is smaller in our area and still fit the criteria that we want. We absolutely love the fact that cleaning our place takes no time at all. Smaller space= less stuff= little cleaning= no stress!
Smaller space= less stuff= little cleaning= no stress!
Thank you, Mrs. Wow. I have a friend who bought a 3,500 sq ft home for him and his wife. Two people! Cleaning a 2,000 sq ft home is a pain in the arse. I cant imagine what cleaning a 3,500 sq ft home is like. No thank you. Give me less space, less stuff, and less cleaning.
Well were living in a 24 ft travel trailer right now and it is definitely cozy 😉 Thats down from 1500 sf (plus garage, shed, etc) The house were renovating will be about 1350 sf when its done (hopefully!) Which will be just about right for the two of us and the kids when they are home for visits. I think spatial arbitrage is the next best thing to geoarbitrage if youre seeking FIRE and cant move. And Claudia and Garrett are great examples of that!
24 ft travel trailer? Are you comparing notes with Steve and Courtney over at Think, Save, Retire? I love it. And you 1350 sf looks like the sweet spot of space to me. Thats our game plan as well.
Spending a few years deployed taught me that living simple is not that bad. Your spouse definitely has to be on board though. I think it is an excellent option for many. Its gaining popularity due to the tiny house phenomenon advertised everywhere. Great site BTW. Just found it from Financial Samurai.
Thanks, Brad. I really appreciate your kind words. And youre absolutely right. The spouse definitely has to be on board. I think the biggest fear people have is that they equate simple living with deprivation. Those in the military, or those who have traveled extensively, seem to know better. More space and more stuff doesnt mean more happiness. Perhaps the tiny house phenomenon is evidence that more people are figuring this out. Thats my hope, anyway. Again, thank you for your kind words, Brad, and thanks for stopping by.
We downsized from 1400 sf to 670 sf almost 3 years ago, and 670 is probably too much for the two of us. Our Downsizing process has allowed us to reduce expenses and save a lot more money, even in Portland. Oregon, where there are no rent bargains. Good article, Mr. G.
Nice, Mr. G. 1400 to 670 is a dramatic cut. Id like to go from our current 2000 to roughly 1000, but Mrs. Groovy wants a little more space (1200-1400). And shes the boss. Anyway, Im glad spatial arbitrage worked out for you and Mr. G. Thanks for sharing, my friend.
Its on our list for once the kids are out of the house. For now though I enjoy having space.for our 2 and 5 year old. I cant imagine trying to sleep with them in the same room..
Haha! Sharing a bedroom with a 2 year old and a 5 year old would be rough. I wouldnt wish that on any adult. Spatial arbitrage can wait.
I downsized quite a number of years ago when divorce not so kindly nudged me (and my teenage daughter) from the Ponderosa to a 2BR 2BA condo (about 1,100 SF). Now my daughter is out on her own and my wife and I live in a similarly sized condo in a somewhat reasonably-priced neighborhood. While I have a lot of admiration for what Claudia and Garrett are doing, I could see shaving off maybe 200 SF, but not going all the way down to 536 SF. My wife and I do have an escape plan, that if we needed to downsize further we could do so financially (moving to an older condo in a different neighborhood) without doing so spatially. But for now were comfortable where we are.
LOL! You and Mrs. G are like siblings separated at birth. She says the exact same thing. She wants to downsize, but not extreme downsize. In other words, she wants some wiggle room to downsize even further if the U.S. economy really tanks. Thanks for stopping by, Gary. I love the cut of your jib.
Its one of our future dilemmas. Wed love to take advantage of Geoarbitrage, but wed like to see where are three kids land. We dont want to move too far away. Were thinking future costs, travel for all of us to visit each other, possible grandkids, holidays, etc. If we stay in the Northeast, downsizing would be the right call.
Kids are definitely the fly in the ointment when it comes to geoarbitrage. It would be great if they all relocate to the same city/state. But that doesnt always happen. One solution might be to buy a condo next to one child and then spend a month with each of the other children. My parents were lucky. All three of their children relocated to the same state. So moving to NC was a no-brainer. But I have a funny feeling the Dept Discipline tribe will figure things out. Sensible parents + sensible kids = great life. Thanks for stopping by, Brian. Its always great hearing from a fellow Lawn Guylander.
My family (of 3 or 4 depending on whether Im there or not) spends the better part of the summer in a 700-square foot cabin, and were perfectly happy there.
Coming home to our house, which is 5 times bigger, makes us wonder why we have so much space (and so much stuff to fill that space). When I retire, we plan to mid-size into one place. Bigger than 700 square feet, but much smaller than our current home.
Hey, PoF. Mrs. G and I had a tough time in 600 sq ft. But we were fine in 900 sq ft. Our current home is 2,000 sq ft, and its way more than we need. Next year we hope to geoarbitrage and spatial arbitrage. We want to buy some land in the Wake Forest area and build a 1,200-1,400 sq ft home. Keep us posted on your spatial arbitrage adventure. Always a pleasure hearing from you, my friend.
536 sq ft sounds too small for 2 people. I wonder if they can keep it up for the long haul.
We live in a 1,000 sq ft, 2 bd/2ba condo and it works pretty well for 3 people. My mom is staying with us more and its really tight for 4 people. There just isnt enough space to get away from each other.
Well probably move to a bit bigger place soon.
Spatial arbitage is good if you can handle it. It worked for us for a long time, but we need more space now.
Haha! Youre not going to believe this, Joe. But Claudia and Garrett are actually considering moving to a tiny house (150-200 square feet). And heres the beautiful part: they have the temperament and bond to pull it off. But such cramped living isnt for everyone. Mrs. Groovy and I couldnt go much lower than 900 square feet. We definitely need to get away from each other every now and then. Thanks for stopping by, my friend. Love your frankness.
We thought about it, but ultimately decided it wasnt for us. We both love our space, and I love to cook something that I see as a big challenge to the truly tiny house living.
That being said I think its a great option for those who are comfortable with it. And you dont need to be extreme about it, either. Theres no point in getting a 2000 square foot house when 1500 would do.
At the end of the day, where you live is as much (or more) of an emotional decision than it is a financial one for many people, so long as the numbers still work out.
Yes we undoubtedly extended the amount of time we have to work due to our home, but thats something we were fully aware of and accept, and are extremely happy with our decision to do so. 🙂 In the end, thats what everyone needs to do whatever makes them happy.
Amen, brother. Personal finance is indeed personal. And for some people, putting up with high housing costs is the price theyre willing to pay to stay close to family and friends. I have friends back on Long Island who will never leave as long as their children and grandchildren live there. Thats something I wouldnt do, but I completely understand and respect their decision. Thanks for stopping by, Dave. Insightful comment as always.
Love the idea of spatial arbitrage. My wife and I Airbnb a spare room in our house, which is sort of a form of spatial arbitrage turning unused space into used, profitable space. Its an option for folks who are stuck in the too, big house.
I love it, FP. Turning a spare room into an income producing machine is indeed a form of spatial arbitrage. Very nice, my friend.
Ten years ago, we purchased a 960 square foot home. At the height of occupancy it housed; 2 adults, 2 kids, 2 dogs and a cat, all at the same time. The kids share a bedroom and the third bedroom was used as an office and animal room (to keep them safe from the kids, smile). It has a futon in it for (the rare occasion of) guests. I always say that it would be nice to have a second bathroom but weve never needed one (my kids arent teens yet so I reserve the right to change my mind). The house is more than big enough for all of us.
We sold this house this month and are in the process of moving to a furnished rental (owned by family). We will live on the main floor of a house. I am enjoying the process of downsizing everything and cutting our living costs even further.
Thats awesome, Sarah. Most Americans dont realize how greatly theyre sabotaging their financial advancement by buying more home than they really need. When I grew up, everyone had modest 3-bedroom, 1-bath homes. And most families back then had 3 or more kids. And no one thought they had too little space. But somewhere along the line, the real estate industry convinced us that were losers if we dont live in a McMansion. Sigh. Keep doing what youre doing, Sarah. You guys are kicking butt.
We live in less space than we have, but thats mainly because of too much stuff. I suspect, though, that we need at least 2 bedrooms and 2 full baths to be comfortable, at least til our Munchkin moves off into the world. Love her, but not sharing a bathroom with her, lol.
One thing Ive noticed, though, is that as I get older I am far less wedded to the idea of a yard. I can always go to a park and join a community garden. Jon, however, likes his space and his stuff.