Geoarbitrage – All the cool kids are doing it. #2

Back in January 2018, when this blog was just beginning, I wrote a post about Geoarbitrage, where I talked about what it is and how Australians are starting to take advantage of it. We hear a lot about Mexico and South America in the FI community, but people down in our part of the globe have different options available to us.

You might notice that at the end, I said I’d talk about how the Frogdancer family took this concept and tweaked it to our advantage. It’s been 8 months since I made that promise. Instead of saying that I’ve never really been in the ‘zone’ to write about it until now, let’s just go with the tale that I was practising delayed gratification with you.

A couple of weeks ago I talked about how I paid off my mortgage on a single wage and became debt-free. When that happened, I thought that the story had finished. I was going to stay in that house until I was carried out of there in a pine box at the age of 120. I’d established an urban Food Forest with chickens, a huge worm farm made out of a freezer, over 30 fruit trees and 12 veggie beds, half of them wicking beds. I’d spent lots of money and countless hours putting all of this together, building up the soil, learning how to garden and look after chickens. All this was on a suburban block 16kms from the Melbourne CBD and life was good.

Late in 2015, I’d just come back from a mammoth 9 week trip to Europe and I’d hired someone to paint the outside of my house. Then I went to an auction of a house 2 streets away.

It was a similar house on a similarly-sized block. Nothing special – a 3 bedroom house with one living area and one bathroom. Nice, neat garden, a kitchen that had been updated maybe a decade ago – nothing out of the ordinary. It went for 1.3 million dollars, which stunned all of the neighbours. Most of us had been there for years – I’d moved in 19 years before and paid $136,500 for my place. We all marvelled at the price and patted ourselves on the back for being intelligent enough to buy just before the housing bubble hit.

As I walked home, I was marvelling at how much equity I had in my paid-off little house and how all of the scrimping and scraping to keep it in the early years had paid off. I remembered when we were looking for a house to buy, (I was still married then), how we’d stopped outside the house to look at it, then driven away without going inside because the cladding was so ugly. When, a couple of weeks later, I viewed the house after it was passed in at auction and the real estate agent mentioned the owners’ reserve price and I realised that with our 40K deposit we could afford it – that’s when we decided to buy. The ugliest house in the best neighbourhood – what a cliché! But I guess clichés are clichés for a reason: they tend to come true.

Nothing had changed in the plan for my life. I was still going to live a long and fruitful life and die in that house… until just before I got home I walked past the ‘For Sale’ sign on my next-door neighbour’s house. I stopped dead in my tracks. I clearly remember thinking, “Is this opportunity knocking?”

You see, when we bought the house one of the main drivers for me was that it was in the school zone of one of the best public secondary schools in Melbourne. My oldest son was just starting primary school that year and the youngest was only 6 weeks old, but I’ve always taken the long-term view. Over the years, the school’s reputation has only grown better and better. As the Melbourne/Sydney property bubble grew, property prices in this school zone began to grow even faster, with a 15% “School Zone” bonus being placed on the already inflated value of each property.

Up until then, this had all been totally irrelevant to me. I was living my life, being vaguely grateful that at least my house wasn’t a total money pit – but really, who cared about rising property values? The boys and I needed to live somewhere and this place was it.

But now… I looked at the two properties side-by-side. Developers LOVE deals like this, as it means they can squeeze another unit onto the block. Units and townhouses were beginning to pop up all over the zone, as individual houses were being priced out of the average family’s reach. I knew it was a viable prospect. My youngest child had finished year 12 the year before, so there was no real reason why we had to live within walking distance of the school anymore. Maybe I could sell my house in partnership with the neighbours for a bit more money than if we both sold them alone, buy a house in a cheaper neighbourhood and bump up my superannuation. I’d spent 10 years out of the workforce bringing up my boys when they were little and my super was woeful.

But could I bear to leave my little house? I loved that house. It took the weekend for me to weigh it all up, walk around and say goodbye. It hurt, but again, I had to keep my eyes on the long term.

It turned out that the neighbours had already bought another house, so come what may at the auction, they had to sell. I had my place unofficially on the market, ie no sign out the front, but letting the Real Estate agents know that I was interested to sell. The house next door had a disappointing result – only 1.24 million. They had to accept it. I was offered the same amount for mine by the person who bought it, but I laughed and turned it down. I loved my house. I wasn’t going to just GIVE it away!

Then a friend of mine contacted me. Her husband was a property developer. We sat down and agreed that we’d go into partnership together. We’d build a couple of massive luxury townhouses on the block and sell them. Assuming the bottom didn’t suddenly fall out of the property market in the meantime, he’d make a tidy sum and I’d make more than I would have if I sold the house as it was. I’ve never done anything like this before, but I took a leap of faith and we agreed to do it.

The obvious downside to this is that we’d need somewhere to live while the townhouses were being built. Most people would just rent something, but we had 2 dogs and 2 cats. No rental would touch us. I had to buy something straight away and use expensive bridging finance to pay off the new house while waiting for the build to be completed on the old. Yikes! But I started looking.

It’s funny, but at the start, I had a definite range of suburbs in mind. “I’m going no further than Oakleigh!” But the prices there were crazy. I fell in love with a house, but it was looking to go at the million dollar mark, which would defeat the purpose of doing the deal in the first place. I needed a few hundred thousand to throw into my retirement account.

I needed to be near a railway line because my younger two boys didn’t drive, so I was pretty well locked into Bayside suburbs, which were pricier. I gritted my teeth and kept looking further down the bay.

“I’m going no further than Parkdale!” Prices there had risen too far.

“Mordialloc!” I actually bid on an Edwardian house that was in need of work and was on half a block of land, but I pulled out when the bidding got beyond 700K. It was only on half a block of land, for Pete’s sake! It went for just under a million.

As I was driving home with my best friend, Blogless Sandy,  who’d come to the auction with me, she said, “You know, it’s the week before Christmas. Take a break, there’ll be nothing new coming up until late January. Get Christmas out of the way, enjoy your holidays, then get back into it when you get back to work. ”

I nodded sagely. Wise advice. As soon as I set foot in the door I fired up my laptop and went straight to the real estate sites.

And then I saw it. The Best House In Melbourne. It was FAR further out than I’d been looking. Mordialloc was over the bridge, and this one was over the NEXT bridge – ‘ a bridge too far’, as one of my friends calls it. But…

…the price range looked do-able. The house plan was absolutely perfect for our needs. The block of land was smaller, which would mean that it’d be easier to keep under control. I couldn’t wait till Monday to ring the Real Estate agent and go and see it.

In my search for the new house, I had a list of 24 things that were either “must-haves’ or “would be nice to have”. Turned out that this place had 22 out of the 24. What were the two that didn’t make it? A short commute to work and enough space for the chooks. So the chickens had to go and I had to listen to more podcasts. Oh well.

The next day (Tuesday), I put in an offer and agreed to take Blogless Sandy down that evening to have a look. While we were there the Real Estate agent got the call that the offer was accepted. I was ecstatic. And I little scared. 750K is a lot of money – but coming from the suburb that I did, it still seemed ultra-cheap for a house way bigger than the one we were living in, 30 years younger and literally 5 minutes walk from the beach.

I paid the deposit the next day, thanks to Blogless Sandy who lent me the money until I got the bridging finance organised. I’d just spent all my ready cash on my trip of a lifetime, not expecting to be buying a house 5 minutes after I got back. Incidentally, this is another reason to get your financial act together – you’re in a position to be able to help people when they need it. I wouldn’t have been able to swing this deal without her and I’ll be forever grateful to her.

The next day was Christmas Day, and I was able to loudly announce to my family after dinner, “I just bought a HOUSE!” We organised a 90-day settlement and we moved in at the next school holidays, in April.

What didn’t go to plan?

  • The process to get planning permits/an arborist reports/water board permission/architect plans etc took way more time than we estimated. Instead of taking 6 months, it took 15 months for final plans to be stamped by the council. That’s a lot of extra months paying bridging finance at 3K per month on a teacher’s wage.
  • The distance away from where I used to live took too much strain on my side-hustle as a Thermomix Team Leader, so I had to drop it. The upside of this was that I was able to go back to full-time work as a teacher, instead of having to take a day off a week to accommodate Thermomix.
  • The bridging finance took 72% of my takehome pay for the first 9 months. Then I went back to full-time work and it dropped to approximately 55% or something. It was very stressful having to see so much of my wage going out the door while at any moment the boom times in the Melbourne property market could end. If that happened, the gamble would’ve all been for nothing. I wouldn’t go broke, but the sacrifices would have been wasted.
  • It was more stressful than I bargained for. Security is very important to me and the thought that I might have tried to be a bit too clever and ended up sabotaging all the work I’d done over the last 20 years was horrible. I didn’t sleep very well for 18 months, and I’d look at my house and think how much I loved it, then think, “If only I owned it!”

What ended up happening?

When the planning permits were all in place, the property developer friend and I went to see a local Real Estate agent to see if we were on track with what we were planning. During the course of the meeting, he casually mentioned that a property in the Zone with fully-approved plans could sell for as much as 1.7 Million dollars because developers are always looking for plans that are ready to go. I thought that he was talking through his hat. That’s a ridiculous sum of money.

Turns out that he knew his market precisely. After paying out the real estate agent and the property developer for his costs and 100K for his trouble, I was able to walk away with exactly the amount of money that I probably would have received had we gone through all the trouble of the build. OMG. As it happens, over a year later the builders are still working on the development. That would have been over a year more of the bridging finance that I would have been paying. You can’t tell me that wouldn’t have been biting by now.

An added bonus, that I could never have planned for, was that over the last 2 years my new suburb has become more popular. My house is now worth 1.1 million, which more than covers the cost of the bridging finance. This was pure luck, but I’ll take it!

Here’s the deal about my geoarbitrage strategy:

By moving 20km further out from the CBD, I was able to capitalise on the equity in my home and put it to work. I was able to max out my superannuation account, which I was happy to do, given my age. You can’t access super until you’re 59, which is about when I’ll be looking to retire, so I’m happy to lock the money away until then. If I was younger, I might have deployed it differently. But a healthy super fund? That gives security. Old Lady Frogdancer will be fine. She won’t have to worry about sponging off her kids in her old age.

I also, as an added bonus, walked away with roughly 350K extra. Before I thought of doing this deal, this is around the amount of money that I thought I’d end up with in my retirement account when I retire at the age of 69.  Now I have it as ‘extra’ padding!

Given this, I estimate that I can retire at least 10 years earlier than I otherwise would have been able to do. This deal has bought back 10 years of my life. That’s huge. Imagine the travel I can do while I’m still nimble enough to enjoy it…

I decided to reserve 50K of the ‘padding’ money to set up the backyard to bring back the food forest idea on a more limited scale than we used to have. I’m in the process of getting this done now. I’m spending money on what I value, which is a rare and precious thing to be able to do.

The house we now live in suits my family going into the future. As you can see, it has 2 zones – which means that at present, the two sons I have living with me have their own part of the house at the back, while I live in the front with my ensuite and walk-in-robe – such LUXURY!. But, with an eye to the future – when they want to come back with wives/partners to live cheaply while saving for a house deposit, we won’t be getting into each others’ way. I’m a big believer in privacy and this house definitely offers that. Ever since I left my husband back in 1997,  providing a secure base for my boys has always been huge for me. This place enables me to keep that option open for them in the future.

It also suits the way of life I want to lead going forward. I’m within walking distance of the Aldi, the train station and (joy of joys!) the dog beach. The design of the house is by far more practical than the old house and it looks beautiful as well. I’m still within easy reach of my family and friends, and although my commute to and from work is now 2 hours out of my day instead of 6 minutes, my years at work are limited so it won’t last forever. I’m just down the road from the Freeway systems, so it’s a straight drive to the airport.

Ok, so Frogdancer is happy with the outcome. Good for me! But what’s the take away for you?

The beautiful thing is that unless I’d started educating myself about personal finance, Financial Independence and the FI/RE movement, with all that it entails, I don’t know that I would have recognised the opportunity when it knocked, or been brave enough to take the leap if I had. I’d read about geoarbitrage on other blogs, but they all talked about moving to a cheaper state or country. That didn’t suit me at all – but moving to a cheaper SUBURB was the way I tweaked the concept to suit us.

That’s the point of the whole thing. By reading books and blogs, listening to podcasts, going to conferences and opening up to others’ ideas and points of view, you’re adding options to the smorgasbord of possibilities. You hear this saying a lot – “The point about personal finance is that it’s PERSONAL.” There’s no one way to work the system to get where you want to go.

It’s exciting. There’s so much information out there that people are generously sharing. Much of it won’t be applicable to you, but gee whiz! Every now and then someone will write or say a nugget that could change your life. Knowledge is power. Opening your mind to other people’s strategies and ideas enables new connections to be made in your mind when you look at your own situation. You have the chance to optimise your current situation and tweak things to make your life even better. Yes, it’s very exciting.

For example, I gained security by doing this real estate deal. However, going forward, I’m not revisiting this strategy. Australia’s urban property market is, I believe, vastly over-heated, so I’m turning to the share market instead. I’m looking at all the information available to me and I’m tweaking it to suit my situation. I’m not following just one way to financial freedom. I’m learning about the options and selecting the ones that suit me best going forward.

I strongly believe that anyone else can, and should, do the same. There are opportunities stretching to the horizon for those who listen, learn and strategically act. Why shouldn’t one of those people be you?

 

 

 

 

Advertisements

The story of how Frogdancer Jones won her freedom.

In 1996, my then- husband and I bought an ugly little 1950s weatherboard in a quiet suburb near the bay. We had 4 sons: a nearly 5-year-old about to start school the next year; a 3 and a 2-year-old and the baby of 3 weeks.

This house had one lounge, one bathroom, one toilet but 4 bedrooms. We figured that as time went on we could extend. We had a deposit of 40K. The mortgage was 96K.

A year later we divorced and I had to buy him out. The court set the figure at 18K so I went to the Commonwealth Bank to refinance. The bank knocked me back, saying that they’d refinance me LESS than my current mortgage, (which I was making the payments on every month like clockwork.) I couldn’t believe it. I’d lose the house. Where would the boys and I go? I went home and cried for three days.

Then I got angry.

I rang Dad and asked him to come over and look after the kids. Then I dressed in what little ‘office’ attire I had left after 7 years at home with the boys and I marched back into the offices of the bank. I was very clear about my future prospects, my unblemished banking record and the fact that although I was a single mother with 4 children, that didn’t automatically mean that I was a no-hoper loser.

The mortgage rose to 115K. I paid out my husband and the boys and I settled into our new life as a single-parent household. I decided to stay at home with them, primarily to give them the stability that a divorce had taken away from them, but also because the childcare fees for 4 children would eat up any wage I brought home. I cleaned houses to get a little extra cash when Mum could look after the boys, but basically, we lived on the smell of an oily rag.

The next few years were very hand to mouth. There were child-support dramas that saw some very tough times, but I knew that as long as I could make it through until Evan began school, then I could make the whole thing work.

When Evan started prep, I began teaching again, first as a CRT/Emergency teacher and then I got a 9-month full-time teaching contract at my local high school, the same year that my oldest, Tom, started there in year 7. This school was the reason I’d chosen the area way back when we bought, as it had an excellent reputation as one of the top 4 non-selective government schools in Melbourne. Nothing but the best for my boys!

I had security for 9 months with this contract. Our car was falling to bits so I bought a three-year-old Ford Station Wagon, which made the mortgage rise by another 15k. I vowed to have the mortgage down below pre-car levels by the time the contract ran out. I did.

I kept getting contract after contract at the school. Meanwhile, I cleverly fixed the mortgage rate for 5 years, only then to see interest rates plummet. D’OH! Not what the plan was supposed to be! Still, I consoled myself with the fact that at least I knew how much my payments were, and if it wasn’t for the Commonwealth, I wouldn’t even HAVE a mortgage. I kept on.

When the school offered me a permanent position, I knew that now we were safe. I took the boys on a holiday to Bali, ( then Thailand the next year because we had so much fun), and I started renovating. My plan at first was to pay off the house and then save for a new bathroom and kitchen- but then I thought it’d be better to get it done while they were all still living with me and we could all get the benefit.

Ironically, this time when I went back to the bank to talk refinancing, they offered to lend me 260K. I laughed, remembering how just a few short years before I was deemed to be a Bad Risk. I didn’t want to spend that much money, because I still had my over-arching dream to be debt-free.

So the mortgage rose to $199,995.
There was no way I was going over the 200K level!!
DSCN0231

I got rid of the ugly asbestos cladding that looked like bricks made of chocolate icing. We had ducted heating and evaporative cooling put in, along with a new kitchen, bathroom and a continuous gas hot water service so we could have our showers the exact temperatures that we liked – and we weren’t constantly heating up a tank of hot water and paying for it. And a fence:
DSCN0252
Since then, I chipped away at the mortgage, enjoying each time it fell another 10K’s worth. At first, it was slow, but then momentum started to build up. It became like a game, seeing what else I could shave off our expenses to get the total down more and more, month after month. I chose not to do a lot of things on my way towards freedom, but one choice that I decided to do made a huge difference.

In 2012 I went to a Thermomix demonstration held by a blogging friend from my personal blog and I bought one. I loved the machine and it started me thinking…

Three weeks later I became a consultant. Nowadays we’d call this a ‘side hustle’ but this was way before anyone was coining that phrase. I knew that I needed to make more money and my Etsy shop selling knitted hats just wasn’t cutting it.

From memory, my mortgage was hovering around the 100- 90K Mark.

In 2012 I worked full-time as a teacher and did thermomix on the side. I earned a free trip to Hong Kong for a week, which I was rapt about. Being able to travel was one of the sacrifices I’d chosen to make to get rid of the mortgage.

In 2013 I swapped my mortgage to UBank. At the time it was 77K. The lower interest rate made a HUGE difference. The principal started melting away before my eyes. I redoubled my efforts and started hurling every dollar I could at it.
My house had a leaky spot in the guttering. It needed painting. My curtains were so dated it was embarrassing. It needed awnings out the front. But I kept patting her, saying, “Don’t worry, hold it together. Let me pay you off, save for Europe in 2015 and then I’ll look after you.”

In 2013 I invested more time in Thermomix, going part-time with teaching by dropping a day and 17K in wages to take on a Group Leader position where I was managing a team of consultants. I was scared to drop my wage, but if I wanted the job in Thermomix I had to attend fortnightly meetings on Friday mornings. I gave it a go, thinking that if I was able to double what I was losing, then I’d be happy.

I did that. I also earned another free trip, this time to Sun City in South Africa. Who would have ever dreamed that an ordinary single mother of 4 would be able to see African wildlife IN AFRICA, let alone walk through the bush behind real adult lions and cuddle lion cubs? Life was beginning to brim over with possibilities…

December 19th 2013, I was lying in bed first thing in the morning. It was the last day of the school year. I pulled up my UBank statement on my iPad and couldn’t help but notice that my savings were $10 more than my mortgage.

The mortgage was $12, 330.

It was more than flesh and blood could stand. I paid it all across. I had no emergency fund, no holiday savings, no nothing.
But I had my freedom. It only took 17 years.
DSCN0664_2

Frugal Friday: Early Bird train travel.

It seems like travel hacking is splashing itself all over the internet lately – Americans flying first class all over the world for about $11.50, all due to the amazing reward points they can get on their credit cards.

This isn’t going to be a post about that.

This is about how I’ve tweaked my morning routine to take advantage of the scheme called Early Bird train travel that operates here in Melbourne. 

Two years ago I was living a kilometre away from work in the house I’d owned for 20 years. Classes start at 8:50am, so I’d leave home at 8:36, drive through the back streets, park in Hall street, walk briskly to my desk, scoop up the books I’d left in a pile the day before for my first two classes, grab my keys and I’d be walking in the classroom door at 8:50 every day without fail. I did this for 12 years and I had it down to a fine art. People in my staffroom knew it was time to grab their books and go to class when they heard me say, “Good morning!” as I came through the door.

Then I moved 21kms away from work. I experimented with driving into work and taking the train. The train is a 5-minute walk from my house, with a 10-minute walk at the other end to school. Both modes of transport took just under an hour each way, so the only real benefit was the comfort of the car vs the extra steps on my fitbit with the train. So I started driving in. Call me lazy – I don’t care.

Then late last year, this happened.

ARGH!!! Why?!? Of course, there was no note on the windscreen. It cost me just over $300 to get fixed.

Suddenly train travel was looking far more affordable.

So in the September school holidays, I got the car fixed, charged up my Myki for the train and discovered an interesting titbit of information about something called the Early Bird. If you begin and end your train journey before 7:15am on a weekday, you don’t get charged for the trip. They’ve obviously brought it in to try and reduce congestion on the morning peak travel times. Hmmmm……….. Maybe I could be a civic-minded citizen AND slash my transport bill in half at the same time?

This meant that I had to do some Maths. I steeled myself to the task. If I got up an hour earlier each morning I could travel to and from work for only $2.80/day, instead of $5.60. On the face of it, it wasn’t much of a saving. But if you multiply that over a week… $14 instead of $28… or over a 10-week term… $140 instead of $280…. the numbers become more interesting.

I decided to give it a go. I also decided to track it on a chart, so that I wouldn’t lose sight of the money I was saving. I knew that if I was staying late for some reason, or I needed to go somewhere after school, I could always drive in. But why not take advantage of an offer for free transport?

So on day 1, term 4 I got up very early and made my way to the station.

Here are the downsides to doing this:

  1. In order to catch the train that guarantees me to get to my destination a full 10 minutes before the 7:15 deadline, (because of possible train delays) I have to leave the house by 6:20am to walk to the station. This means getting up at 5:30am. OMG.
  2. It tends to be a little nippy first thing in the morning.
  3. I have to be organised with my lunches and breakfasts. It defeats the purpose if I score a free train trip but have to buy my lunch from the canteen because I was too sleepy to get my act together in time to make lunch.
  4. If I’m running late, I have to run for the train. I’m not a fan of rapid movement.
  5. It was a massive adjustment for the people in Staffroom 2. For a couple of weeks, people were getting to their classes late because I was no longer saying, “Good morning!” at 8.45. The habits of 12 years or so are pretty hard to break.
  6. They raised the price of the trip by a massive 14c on Jan 1. This makes the Maths more difficult. Thank goodness there’s a calculator on my laptop.

Here are the pros:

  1. It’s really nice to start each day with a few wins. Getting up as soon as the alarm goes off in what seems like the dead of night? Win. (I cheat a bit here… the dogs sleep in my room so as soon as the alarm goes off Poppy jumps onto my bed with joy, giving massive head butts and cuddles, so it’s impossible to hit the snooze button and go back to sleep.) Leaving the house at 6:20am so I don’t have to run? Win. Touching off with my Myki and seeing ‘Fare deducted: $0.00? Win. Walking to school and seeing nearly 4,000 steps already on my fitbit? Win.
  2. Usually, I’m the only one in the staffroom when I get there, so it’s nice and quiet. I put the kettle on for a cup of coffee, I go to the ladies to put my makeup on, I come back, fire up the laptop and eat breakfast at my desk, browsing on blogs or Facebook. As people drift into work, the place slowly gets louder and livelier. I’ve had my quiet start to the day and I’m now ready for the rest of it.
  3. If I need any photocopying done, there’s no queue. Correction? It’s nice and quiet.
  4. I have to be organised with my lunches and breakfasts. (Yes, I know this was in the cons list, but it’s also a pro.) I’m not hungry at 5 in the morning, so I tend to take a couple of hard-boiled eggs for breakfast and I eat them at breaky time… about 7:30. It’s awful when I don’t have an easy breakfast to grab – the default position is a ‘fast’ morning or day, which is good when I’m slightly pudgy but not so good if I’m starving. My lunches tend to be leftovers from the night before or a Mystery Meal from the freezer.
  5. My car will hold its value for far longer. In a normal week, I’ll only take it out once or twice, as I can pick things up from the Aldi around the corner on the way home; if I need to go to a shopping centre I can get off the train at Southland and then hop back on the train to come home; and I hate wasting time on the weekends so I group shopping visits together… all leading up to low kilometres on the clock and no wear and tear on tyres etc.
  6. My overall transportation costs have plummeted. I was buying a tank of petrol every 2 weeks at $50-$60 a tank. Now, it’s around 6 weeks between refills. (It’d possibly be more, but I’m teaching Evan21 to drive so we’re using fuel on that.) 
  7. The table of running savings. Admittedly, I don’t much like doing the Maths for it, but it’s getting to the stage when it’s really starting to add up. Sometimes a friend from work will offer to drive me home, especially if we’re here working late, so I get double dipping on that day. It’s lovely when they offer, but I certainly don’t go chasing it… that’d be rude.

I know that if I saw $183.26 on the footpath I’d bend down to pick it up! It’s nice to know that it’s still in my bank account, but also kind of creepy when you think that it’s a sizeable chunk of money that I would have had to have spent if this offer from Metro trains wasn’t in place.

This is such a little thing, but I like the idea of seeing little opportunities and taking advantage of those that are do-able in your life. Transportation is a big expense for many families, so being able to get to and from work for under $15 a week is insanely cheap. After all, I geoarbitraged to save money and to get ahead, not to spend it all on train rides and petrol!

Of course, I’ve been doing this as the mornings are light and the weather is fine. Spring and summer are ideal for early morning starts. It’ll be interesting to see if my resolve crumbles as the winter kicks in. I don’t run the heating overnight and my beautiful hardwood floors are chilly the first thing in the morning…

I’ll keep you posted.

#winning

Geoarbitrage: all the cool kids are doing it #1.

When Tim Ferriss coined the term ‘geoarbitrage’  about 10 years ago it meant outsourcing work to a cheaper region or country, usually over the internet. Nowadays it’s clear, after listening to podcasts and reading FI blogs, the term has morphed in the FIRE world into a descriptor of when a person geographically moves to an area that has a much lower cost of living.

Traditional retirees have been doing this for years… both sets of my grandparents did this in different ways after the breadwinners retired. One set moved up to the Gold Coast in the late 1960’s when the cost of living was far cheaper than Melbourne and the weather was far better. The other set stayed in Victoria, but sold their house in Murrumbeena and moved to a 1/4 acre lot in Inverloch, in Gippsland. They bought a caravan and spent 6 months of the year up in Cairns, during their beautiful winters, and then they’d drive down to Inverloch to spend time with us during Melbourne’s beautiful summers. Both sets of grandparents chased the sun but did it in ways that were gentle on the finances and offered them all a great quality of life.

Nowadays it’s becoming more common for traditional retirees to look at moving to a country that offers far more bang for the buck than simply living in Australia does. A couple of months ago I was walking the dogs and I started up a conversation with a guy who lives a couple of streets away. He spends 8 months of the year in Malaysia with his new wife and tiny child and rents out his house in Melbourne while he’s away. He loves the lifestyle, the climate and how cheaply he can live there and he only comes ‘home’ to see his adult children.

Also, a very good friend of mine is looking at giving up work in the next couple of years and has almost fully decided to up stakes and live in Thailand when he finally pulls the pin on working. He’s travelled there a fair bit, even having extensive dental work done there that was prohibitively expensive for him in Australia, and he knows he could buy a near-new apartment with a pool and aircon within a stone’s throw of the beach for what we would consider peanuts. He knows that with his investments and the pension, he would be able to enjoy a lifestyle that would be out of reach for him here. 

People in Australia also look towards Bali, but the disadvantage with beautiful Bali is that Indonesia doesn’t let foreigners buy land. You either have to buy something as a silent partner and hope like hell that they don’t walk away with your money, (which happened 2 years ago to someone I know…yikes!), or you go over there and sign a long lease on a property. I saw this ad on Facebook yesterday and thought that it was a perfect example of Geoarbitrage in action.

In today’s exchange rate, $100,000USD equals $125,140AUD. Considering that the prices of residential real estate in Australia are some of the most expensive in the world, a person could free up a lot of equity in their house by selling their million dollar property, tucking the surplus into investments and living the high life in that Balinese villa for the next 30 years. Who knows? Considering the age s/he retires and their state of health, that 30-year lease might just see them out. Bali has the schmicko hospital that was built there after the Bali bombings, the cost of living there is minuscule and family and friends are a short plane ride away. (Well, to be fair, Australia is so big and so isolated that very few places are a short plane ride away, but you get my drift.) It’s a viable strategy for those who love the tropical climate and the relaxed lifestyle that places like Bali and Thailand offer.

But what if you don’t want to move to another country to live, but at the same time you don’t want to work till you’re 70? What if you want to get your toe into the property market but price tags of 1.5 million dollars for a 3 bedroom fixer-upper in McKinnon are seriously out of your reach?

Geoarbitrage isn’t just a tool to use to inch closer to early retirement. It’s possible to utilise it for other reasons as well. I have a friend in his 30’s who really wanted to own his own home but knew that the million dollar+ price tags of Melbourne houses were always going to be beyond his reach. He decided to think outside the box and bought a lovely little house in Ballarat for less than a third of the price that he would have paid where he was originally living. For those who don’t know, Ballarat is a regional town about 120kms west of Melbourne. It’s a large city of around 110,000 people, so it has pretty much all of the amenities that you’d need … including a university that my youngest son, Evan21, will be going to for the next 3 years. My friend J is really happy with the move, with the only practical downside being his commute. He travels into the city by train, but because it’s a country-line train there are fewer services, so he really doesn’t want to miss his train! He’s already negotiated a couple of “work from home” days a week, but of course, if the commute gets too arduous, there’d be nothing stopping him from looking for a job closer to home. Flexibility is the key.

With a concept like geoarbitrage, you have to seriously weigh up what you are gaining vs what you are giving up. There’s always going to be a downside, but the thing you have to measure is whether the advantages massively outweigh the disadvantages. The decisions that people are going to make about whether or not to do it are as individual as they are. Some people are deeply rooted to a place for dearly-held emotional reasons and they wouldn’t DREAM of relocating, whereas others could quite easily sell up and move on without a backwards glance at the place they’ve left behind.  Then there are all the people who fall into the middle ground, which is probably most of us.

When I next write about this, it’ll be a post entitled, “Geoarbitrage: all the cool kids are doing it #2”, where I’ll share how I tweaked the concept to come up with a move that suited the Frogdancer family’s situation.  It was something I never expected I would ever do, but in life there’s something I’ve learned: never say never!