Geographic Arbitrage
Once upon a telephone wire, geographic arbitrage was indeed possible. Without getting into detailed story tales, one only need to look at the opportunity afforded by the multiple ticker symbols of Unilever and Royal Dutch Shell. I recall safely chomping off a basis point here and a basis point there by arbitraging RDS against itself, as there were occasions when the same company would essentially be worth more/less than itself on the open market.
Times have changed, however, as automatons have made the markets a far tougher place to squeeze a booger out of George Washington's nose. That having been said, arbitrage has become more prevalent then ever. As territories for business, information and goods submerge and re-emerge as further synergized entities, the ability to profit by buying elsewhere becomes increasingly difficult.
This brings me to a simpler, though more work intensive form of geographic arbitrage...
Getting off your ass and relocating to a new city...hey...if an entire pro sports franchise can handle it, why can't you push the U-Haul for 12-16 hours with potty breaks?
I decided to run a sample number crunch and look at what
I found . Using a sample relocation from NYC to Charlotte (BofA guys, think about it...) and a sample $80K salary, I found some startling results. Apparently, $48K takes you $80K worth of way, a few mere hours down 95 South...can you guys use an extra $100K bonus over the next three years? Without a raise? Without doing any more than you already are?
I find that in youth we are charmed by the illusion of grandeur (both our own and that of others: cities, people, things), so crunch some numbers on this calculator if you are weighing offers in different locations. You may find some startling truths, you earlier ignored or simply did not consider.
Now, as we all know New York is the center of the American galaxy for finance, as London is for Europe, but as the world changes we not only should...but must...change with it. If the web gives us anything (other than unlimited pornos and pop up ads) its flexibility, being "there" is just not as important as it used to be.
I think many young guys and gals ignore the actual value of a buck and are too easily charmed by the purported benefits of "the big city". Priorities and ideas about life change.
As a native New Yorker I spat upon anything outside of the 5 Boroughs. For me, anything north of the Tappan Zee Bridge was indeed...Canada! Only Manhattan was "the city"...a night in BK or the Q was akin to visiting Gammy in the sticks.
Times have changed, I'm no longer in NYC and doubt I could ever pay for the prolonged colonoscopy experience ever again. Do what you want and how you want, but remember that there are MANY options out there and that researching them is crucial.
Think about RDS and Unilever and read up how guys made money of geographic arbitrage...it is definitely worth the thought.
I agree with you on most points but, what are your thoughts on the benefits of being able to network in NYC?
It's a simple cost-benefit analysis. Is the cost of living in NYC worth the networking opportunities? If you can flip the networking into actual, tangible, solid connections and those connections can help you get so far ahead as to offset the damage of the negatives...than it is. If not, you're paying for zip code props. Plain and simple.
My thoughts come from a general perspective. Variety comes on a case by case basis. Overall, however, once your foot's in the door your own skill set will write your ticket. All depends on what you are trying to accomplish.
Ah, the prolonged colonoscopy that is NYC hahaha.
I'm speaking from the heart from the center, the sign on my ass says "do not enter".
House Party with Kid'n'Play...classic.
Wow, this is the most timely piece for me. I'm actually in the process of geographic arbitrage right now. I'm in the Washington, D.C. metro area in CRE/CRE finance, which is pretty big here. As a native, I really don't love it here and am considering moving to suburban Kansas City in Kansas where I have family.
The cost of living is 35% cheaper in the suburbs of Kansas City than the Washington, D.C. suburbs in Virginia. But after fairly detailed and extensive research, it is apparent that the cost of living is virtually all associated with the cost of land, rent and home prices. There is little break on things like water rates, electric rates, food prices, gas prices, etc. (of course, NYC is different than D.C. NYC is outrageous). But a 3,000 sqft new house is selling for about $300,000 in Kansas suburbs vs. $600,000 + in suburban D.C. My portion of the townhouse rent in Virginia is $600/month that I share with 3 other guys—the place is horrible (A/C doesn’t work, carpets are filthy, bulbs burnt out, smoke detectors out of order, over grown shrubs, broken facia, inoperable doorbell, holes in wall, hasn’t been painted in 20 years, etc.). For $450/month in Kansas, I could have my own place with professional management and for $550/month attached garage parking. This would cost about $1,400 in Virginia.
So yeah, if you can find a similar job and weasel out a similarly high salary, you can live very well and maybe even like a king. What a lot of Washingtonians do is get their jobs transferred so they can transfer their D.C. income to cheaper areas. After thorough research and objective analysis, it’s not worth a substantial pay cut to move from a city you otherwise like because cost of living is generally associated with housing costs. Even at $1,000/month marginal difference in housing costs is $12,000/year which is worth about $17,000 in income at a 30% tax rate. Not world changing.
I'd pay a premium to move from D.C.
LOL. I might, too.
I think it's worth the move for people IF they can transfer their salary and they don't like their current city. Since I don't like my current city and I have a potential job offer for equal my D.C. salary, it might make a ton of sense for me to leave because I could live like a king somewhere else. But if you like, say, NYC, it may or may not be economically efficient to take a 30% pay cut to leave.
Yeah, I figure more than two conservative bones in body might run risk of projectile vomitage in D.C...
I actually wasn't even thinking about the big things (i.e. cost of living) when I wrote this. More like...if I want to go out and comfortably enjoy myself in NYC I may be dropping several hundred bucks and getting the high hat from servers for not dropping G's. On the other hand, for $60 bucks in KC, StL or Omaha I'm filet mignoning and craft brewing it up while treated like king. Opportunity costs take different shapes and sizes, IMHO.
Good call. And as you point out, NYC is OBSCENE in costs, even compared to D.C. My buddy just graduated from UVA law school and is doing $170,000 in Manhattan. He's not starving, but by his own account he's not living high on the hog either. At $170,000! Because of taxis, taxes, clothes, even coffee--it's all absurdly expensive to just leave the apartment, which is $3,000/month and small.
Exactly. The hidden costs in NYC cannot be fathomed by those who've never lived there. Especially, if you work in big law/banking/consulting, etc...you are forced to spend so much on the little things that your paycheck's bottom line really doesn't tell the whole story.
VT check yourself before you wreck yourself. I had an ex-gf in KC and it really isnt that cool of a place (save the plaza area in Mission Hills). Being from VA and having a bunch of friends in the DC area, I can honestly say it is a nightmare. Traffic is terrible and the cool place to live, Georgetown, is real yuppie and overpriced.
This arbitrage article is the reason I chose my current location (Houston) over NYC. While it may not have the same 'scene" as NYC. The 25% taxes and low-cost living were an easy sell. You can live like a king for 70k+.
Yeah, KC isn't exactly the first city on my radar, but I guess I'd be sticking more with the suburban scene...eh, I don't know. I haven't taken the job offer yet (I guess it's officially not offered yet but it's pretty certain). Still deciding. Have a week or so to decide. It's mainly because my family is there and I love the flat roads and fast speed limits and because I potentially have a great job there, i.e. arbitrage opportunity.
Midas, yep. But I still have an unhealthy case of the green-eyed monster with his salary figure, especially because it's from UVa...grr...
I can dig it. It's all a masturbation...I mean maturation, process. Once you put enough miles on the odometer, you'll realize that simply by virtue of not being a lawyer...you kicked his ass. Plenty of time tho...
Just think about your man Tiki Barber, we all swore he'd be a 3rd down back.
Isn't part of being in the big city to attract top talent. I know people that turned down UBS because of it's Stamford location
Great topic MMM. Though I have another 2 years or so here in my current position, I've been giving this a lot of thought as I contemplate what my next move might be. It's possible that I may end up in Bschool but find that it might be a hard leap to take if there is a job available that would give me the opportunity to keep doing what I'm doing. But Bschool aside, and assuming there are potentially multiple opportunities, I've been debating whether moving to NYC would be worth it in the long run. I find that NYC is appealing from the fun, cool, interesting standpoint, but don't see myself growing old there or raising a family. I'm from the Southeast and have been here most of my life, I think that the PE opportunities in the SE are available, but on a smaller scale than what you would find in NYC or Boston...which I think I am okay with.
I think for most people the decision to move is easier if you are leaving NYC for lower cost of living, etc as you get older and settle in, but the tougher question is whether there's a benefit it moving to NYC if you started elsewhere. At this point, assuming in a couple years that the job market is there to support staying in the SE, I think that it might be the best decision for me. Obviously, if the only jobs I can find are in NYC, than it would seem like a no-brainer to take one and move but the value of your network, especially in PE, can't be emphasized enough...so moving around to new places often isn't advantageous. Being able to leverage that network for both career opportunities and deal flow is essential to being successful, especially at the MM level (more prominent outside of NYC vs Mega funds).
I don't think the difference in wages and social benefits (night life, restaurants, shows, networking, etc) will likely be worth moving to NYC, for me, given the drawbacks (higher cost of living, small expensive apartments, much more "high strung" than the SE, etc). We shall see though, at this point it is all speculation.
Ultimately I think it is very important to find a solid work/life balance (as trite as that may sound). After all, that is typically the reason why bankers move to F500, buyside and/or entrepreneurship. There are lots of places outside of NYC that will provide you a better quality of life but keep in mind that even that comes at a price...potentially mundane for someone with many years in the city.
Regards
For quick estimates you can use the following cost of living comparison calculator: http://cgi.money.cnn.com/tools/costofliving/costofliving.html
For example, $100k in Houston, TX are equivalent to $239k in New York (Manhattan), NY.
In before Quantum mentions Chicago.
Just as an aside, my best friend grew up in Kansas. He told that state is so flat that you can watch your dog running away for three days.
Talk about an epic heart break.
Regards
more reasons why I should stay right where I am in Texas.
Repellendus omnis et ex inventore eos. Itaque ducimus unde tenetur dolores impedit eveniet et.
Iure nobis nihil ad et doloribus vero. Dolore voluptas ut beatae cumque temporibus eaque omnis fugiat. Ducimus ut numquam consequuntur voluptatem numquam alias. Nesciunt sit ex incidunt. Porro sed eum exercitationem fugiat fuga aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Rerum quae debitis numquam quia modi ullam dolores. Quis necessitatibus quis non numquam iste.
Et quod hic maxime consequatur rem assumenda. Voluptas quisquam dolorum sed architecto porro maiores velit. Rerum enim est occaecati est impedit.
Quo qui sit ullam. Enim minus id aliquam perspiciatis voluptates. Placeat autem cumque officia nobis ut.