Arbitrage - The practice of taking advantage of a price difference between two or more markets.
Many people think of arbitrage when it comes to currency trading or even bitcoin prices on different exchanges. But probably one of the oldest forms of arbitrage has to be the buying and selling of real estate in different markets.
I remember moving to Texas on a short term job assignment in my early twenties. At the time, California was going through one of it’s booms and one of the top executives at the company was casually telling my coworkers over lunch how he was able to buy two homes in Texas for the price he would sell his home in California. If you ever wondered why it’s so easy for the rich to get richer, here is one of your answers. Buy at the right time in the right market and then take those gains to a burgeoning market to have your wealth grow like a virus.
This was over twenty years ago, and California home prices are even higher now and Californians are still coming to Texas in droves. Just look at Toyota North America moving their headquarters from California to Plano, Texas just north of Dallas.
As I sit here writing this post, House Hunters Renovation is following a couple looking at an 860 square foot bungalow for $599,000 in Eagle Rock, California (Los Angeles). The difference in properties across states is truly draw dropping. Even having been in real estate for many years, I still struggle to grasp the home prices in California and how people pay for properties. Being from the east coast, I say the same thing about New York. The Times just had a short article on 11 Hoyt, a 57-story condo in Downtown Brooklyn where just a studio residence will go for over $600,000.
If there is one tip I would give college graduates it would be to travel and even live in different cities early in your career. Find out what you like and don’t like and this will help you put together a plan to live and work in your ideal place. Going from an expensive market to a cheaper market is always a great move if you enjoy both cities equally and can take advantage of the cost of living differences. I’m right at the halfway point in terms of how long most people work in their careers and I can’t even imagine moving to a more expensive market now. With college around the corner and a recent health scare, I’d much rather stay where I’m at and continue investing in more real estate before the prices go higher. I’ve been to California many times, and love many areas of the Golden State, but it’s just not in the cards unless I become a dogecoin millionaire.
I recently started reading 1500days.com - If you're not familiar with this guy, he basically describes his story as this:
"My main goal* was to build an investment and cash portfolio of $1,120,000* in 1500 days**, starting from 1/1/2013 and ending in February of 2017. I made my goal in 2016, my 1500 Days are over, and I’ve left my job."
Mr. 1500 still blogs regularly to teach people how he maintains his lifestyle now that he's retired. Recently he posted how he lost a lot of money (on paper) due to the recent downturn in Facebook stock. It's a great example of the importance of not only diversifying your stock portfolio, but even your streams of income. Our opinion is that you have money in stocks, and real estate (REITS and physical single family homes). If you're really lucky, maybe you have a side business or partnership as well, that brings in a third income stream. Having a few income streams allows you to have some more risky bets like catching the upside when things go well in the stock market, but also a pile of more stable money to minimize losses so you can still pay the electric bill even in the worse months.
Read about Mr. 1500's Facebook loss here.
By now, most people have heard about the incident with former Cosby Show actor Geoffrey Owens who was seen working at Trader Joe's. He was there for 15 months and his picture was recently posted on social media in attempt to job shame him trying to make ends meet. He has gotten many interviews on morning and news shows because of this, but there are several points worth discussing that I haven't seen addressed in most interviews.
LIFE LESSON: The Cosby Show ran from 1984 to 1992. I have no idea how much Geoffrey got paid and if he was there for all seasons, but the most critical point continues to be PAY YOURSELF FIRST. This is not to be critical of how he spent his money and lives his life. But being able to have your money make more money for you is the core of what this site is about. I imagine Geoffrey will get more work now and hope he puts more of it away for the rainy days. Good Luck Elvin Tibideaux!
Welcome to StepChange (StpChg). A blog about personal finance, small business, and investing.