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What is Geographic Arbitrage?

Updated: Jan 31, 2019

San Miguel de Allende
San Miguel de Allende - Where retired Americans and Canadians take advantage of geographic arbitrage

What is Geographic Arbitrage? And how can you use it to your advantage living in Latin America? Let's start with the first question.

According to Wikipedia, arbitrage is the practice of taking advantage of a price difference between two or more markets. There are many different ways one could take advantage of arbitrage, and it doesn't necessarily have to be financial, however in this post, we will discuss geographic arbitrage and how you can take advantage of it financially in Latin America.

Geographic arbitrage involves taking advantages of price differences in two different locations. This could be a difference in prices in New York City versus Louisiana, or in our case, any American (or Canadian, Western European, Australian, etc) city versus any Latin American City.

In general, most Latin American Cities have a lower cost of living than a similarly sized US city. There are some exceptions, Santiago, Chile is one Latin American city that has a high cost of living, but it is still going to be cheaper than NYC or San Francisco. While the cost of living is low in Latin America, so are salaries, so locals can't as readily take advantage of this opportunity. However, if you are coming from a relatively high cost of living country with high salaries, geographic arbitrage can be a great opportunity.

For example, check out the prices of apartments on Airbnb in your Latin American city of choice and see for yourself just how much further your dollar can go. Even better, click the banner below and receive $40 off your first stay!

While you shouldn't move to Latin America solely for the low cost of living, it is definitely a major factor in many people's decision. One common example of geographic arbitrage are retired expats living on social security checks in Latin America in cities such as San Miguel de Allende, Mexico or Cuenca, Ecuador. These people can live a much higher standard of living in Latin American on that social security check than they could back home in the US and Canada due to the lower cost of living in Latin America.

However, you may not have a social security check or be retired, but you can still take advantage of this arbitrage opportunity. Perhaps you've worked a few years in the states and saved up some money. Those savings could potentially last two, three times, or even longer in somewhere like Mexico City as opposed to NYC. Perhaps you are starting an online business, Latin America could be a perfect place to reduce costs and extend your runway. Another possibility is you may work remotely for a company in the US and earn a US income. All of these are examples of earning your money in high cost/high income places and spending it somewhere else where prices are low. In other words, "earn dollars, spend pesos."

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