What do foreign ambassadors actually do?
In Sarajevo, where I live, there are almost 40 foreign embassies. And my guess is that the ambassadors here do very little. Sarajevo is a city of only 400,000 people and virtually nothing takes place in the world of international diplomacy. I’m betting the average ambassador shuffles some papers around, checks his or her email, goes out to an occasional dinner meeting, and lives in a very nice house. That’s about it.
What I want to focus on here is the “very nice home” aspect of living like a foreign ambassador — and how you can do that too, even if you have a modest income.
The secret to making this happen is found in one word: geoarbitrage.
And it’s far more interesting than it sounds . . .
I first ran across the term geoarbitrage in the classic book by Tim Ferriss, The 4-Hour Work Week. There, geoarbitrage is simply defined: “to leverage global pricing and currency differences for profit or lifestyle purposes.”
As everyone knows, the cost of living and (the rates people work for) varies widely all over the world. When you use geoarbitrage, you are doing one of two things:
First, you might consider hiring remote workers in less-expensive countries, over a service like Upwork. This is typically called outsourcing.
Second, you could own your own business but live in a much-less expensive part of the world. For example, instead of renting a tiny, one-bedroom apartment in San Francisco for $48,000 a year, you could live in another country for one-tenth the cost.
This second option is another kind of outsourcing. But in this case, you outsource yourself.
How I Outsourced Myself
Ten years ago I created a location-independent business in Michigan. My little company designs and produces books for publishers, mainly university presses. That meant that I could work anywhere, because all of my work is received and delivered over the Internet. That was intentional, because I didn’t want my livelihood to depend on living in one particular location. If I moved, I wanted to be able to take the business with me. But at the time, I never thought about leaving the United States.
That changed, however, after I read The 4-Hour Workweek, which gave me a full blueprint for making the transition overseas. And it really changed after a friend introduced me to the charms of Sarajevo — a city I fell in love with, where the cost of living (in U.S. dollars) is extremely low.
My Sarajevo Case Study: Geoarbitrage in Action
The average monthly take-home salary in Sarajevo is only about $600 US, or $7,200 a year. So it follows that everything else — or most other things — will be less costly than they are in the United States.
Let’s take a look just at the case of food prices, at the time of writing this article:
Sarajevo Food and Dining costs
|Typical food and restaurant items||Cost in US dollars|
|Fresh-baked loaf of bread from local bakery||56–75 cents|
|One-dozen large eggs||$1.89|
|Bottle of good, local wine||$3.65–4.00|
|Fresh, boneless chicken breasts per pound||$2.50|
|Gourmet steak with black pepper sauce, at a top restauarant||$12.36|
You can do your own calculations and see how these costs compare to where you live.
Here are a couple of other costs that are so low readers in the United States might find them to be unbelievable. I still find them to be unbelievable, based on what I was paying in Michigan:
Cell phone and Internet costs
|Monthly calling and data plan for an iPhone on an already-purchased phone||$9.90|
|Monthly cost for high-speed Internet access including digital TV with over 100 channels||$23.29|
Navigating the Real Estate Market
When I first came to Sarajevo, my first apartment was a three-story townhouse, with three bedrooms, one of which I turned into a nice office. I paid 700 KM for it a month, or $525 a month for it in January 2011. And like nearly every apartment in Sarajevo, it came fully furnished.
After staying there for a few months, my beautiful fiancée wanted me to rent another apartment. I didn’t like the location as much, but she was my fiancée, so what could I say? Renting the apartment was one way of showing that I cared about her and her wishes. This new place was also very close to where she lived, so we could see each other more easily.
This new apartment had been completely refurbished. Everything in it was new: floors, windows, furniture, everything. It had two bedrooms, a kitchen with dining area, two enclosed balconies with windows, nice views, and, of course, a bathroom. The total cost of this place was just under $500 U.S. per month including all utilities: heat, electricity, water, television, and Internet.
It was a nice space, but too small for us after we got married. I sold my house in the United States, and had some treasured items — books, artwork, and musical instruments — shipped to Sarajevo by ocean freight, which then filled the place up. (Don’t ask me if I’d ever do that again.)
On top of that, I wanted to hire someone and expand my business. And after a few months of being married we were expecting a baby, too. So we definitely needed a larger place. I was thinking . . . “We need a house.”
Finding “The Ambassador’s House”
After looking at about fifteen places, we got lucky. We found a marvelous house that was a luxury home by both local and international standards. Every detail of the home was carefully considered and beautifully constructed, using the highest quality materials. The owner of the place told us that, at one point, the Ambassador of Slovenia had rented it (hence the title of this article).
This house had three stories, three bedrooms, two full baths, two balconies, a living room, dining area, kitchen, and built-in garage. The living room even had a Greek column in it. And it was only a five-minute walk away from the Latin Bridge and the oldest, most beautiful part of town, full of architecture from the Ottoman and Austro-Hungarian periods. For all of this, I paid 1,100 KM a month, or about $700 a month, depending on the exchange rate.
It was such a nice place I signed a two-year lease to lock in the price. What this means is that you could live in a luxury home in Sarajevo — an ambassador’s home — for $8,400 per year. Using the rule-of-thumb calculation that you shouldn’t spend more than 30% of your earnings on housing costs, this means that with an annual income of $28,000, you could live like an ambassador here.
The Ultimate Geoarbitrage Hack: Buying a House After the Crash of the Euro
The real estate market here is nothing like the United States. For one thing, there’s no Multiple Listing Service, and that’s just the beginning. To make a long story short, it’s challenging and difficult. It takes a lot of patience, searching, and visiting places for sale to get a firm grasp on the market.
Despite that, as the lease on “the ambassador’s house” was coming to an end, I decided we should buy a house. Moving around with a family was too difficult, and too much of an interruption on my work.
There was another compelling reason to buy then, right at that very moment: over the previous year, the Bosnian mark (which is tied to the euro) had fallen in value against the U.S. dollar. Since all of my assets were in U.S. dollars, my buying power had increased dramatically. If you get a 22% discount on a cup of coffee, that’s an insignificant amount. But a 22% discount on a house is literally worth thousands — or tens of thousands — of dollars.
Finding a house was very difficult. But at the last minute, just when I was ready to give up, something materialized that could not have been more perfect. Within 48 hours of seeing it, we had the inspections completed, checked the legal paperwork, and made a 10% deposit. No other potential buyer even had a chance to view it.
It’s a three-story townhouse located in the most beautiful and atmospheric part of town. It overlooks the city and is a ten-minute walk from Baščaršija (“main market”), the old Ottoman part of town that is still the heart of Sarajevo. Our home has four bedrooms, three bathrooms, a living room, dining area, kitchen, two balconies, hardwood floors throughout, and large basement — with absolutely stunning views of Sarajevo from the top balcony.
As an added bonus, it houses a small, one-room grocery store, attached to the property, right next to our front door. This grocery store generates a small amount of rent for us, which should cover our heating bills in the winter. Should the grocery store ever leave, we could always use the space as an apartment and rent it out on Airbnb.
The total area of the property is about 120 square meters (1,300 square feet) and we paid $91,000 for it before making improvements (electrical work, painting, putting hardwood floors in two rooms, and putting a metal roof on the house). All in all, with the improvements and the 5% transfer tax, the cost was about $110,000. And all of that was at a huge 22% discount in relation to one year earlier, thanks to the timing of the purchase (see chart below).
Taking the Next Step: Explore the Possibilities of Lifestyle Design
So what’s in this for you . . . and what is the next step?
First of all, I’m not suggesting that anyone reading this article should move to Sarajevo. (But I do suggest that you visit here, if you ever have the chance, because it’s one of the most amazing cities in the world.)
Second, I’m not suggesting that you do anything at all — except take the time to consider whether or not you could put geoarbitrage to work in your own life. Not this minute, of course, but some day. In today’s world, geoarbitrage is a concept that should be in your mental toolkit, especially if you’re an entrepreneur, someone just interested in lifestyle design, or someone looking for an affordable place to retire.
If you’re interested in learning more, download my free Lifestyle Design Resource Guide.
I’ve written this article as a real-life case study, to show you what is possible, and to plant an idea in your head: “Maybe I could do something similar, in a way that would be right for me?”
There are thousands of other people leading similar lifestyles, making use of geoarbitrage. And for the new class of “digital nomads” inspired by The 4-Hour Workweek, there are even remote working hubs springing up all around the world — for example, places like Hubud in Bali — which entrepreneurs are visiting to start or grow their own businesses.
As I mentioned in another article, wealth, freedom, and meaning are the three elements of lifestyle design. Where they intersect is the sweet spot. By using geoarbitrage, you might be able to further amplify and integrate these three elements of a flourishing life.
— D.R. Fideler