READY MONEY: OPPORTUNITY IN REGIONAL ARBITRAGE

By Scott Burns

Photography by Lisa Means

The possibility first emerged over dinner with an investment banker. He chose to live and pursue his career in San Antonio rather than Menlo Park.

I asked why.

San Antonio was a better place to raise a family, he said.

"Besides, we can have all the California vacations we’d ever want with the money we saved not buying a house in Menlo Park."

And there it was: regional arbitrage for the affluent — live one place so you can afford more time in another.

Just as impecunious snowbirds drive their RVs south to catch the sun and stretch their dollars in the trailer parks of Yuma, Arizona, geographic cost differences open powerful options for those with more income and assets.

At the time, I didn’t understand that my investment banker friend was being literal: For the price difference between a house in most of America and a house in most of California, you can buy more days of luxury vacation than most people have vacation days. While California is the obvious trade-off, we can work the same price difference trick between any lower-priced place and any premium-priced location, e.g. Little Rock, Arkansas, and Antigua, in the West Indies.

Here are the numbers. For $600,000 in Menlo Park, you can buy a house of earthshaking modesty. In San Antonio, you can buy a pretty nice establishment. To get a $600,000 San Antonio house in Menlo Park you’d pay at least three times as much — a cool $1.8 million.

If you assume utilities and maintenance would cost about the same, the major expense differences are in real estate taxes (about $6,000 a year), insurance (about $6,000 a year), and another $1 million in mortgage debt.

The last item sets you back an additional $80,000 a year. (For simplicity, we are forgetting about the difference in down payments — $100,000 versus $300,000 — figuring that you’ve got $200,000 aching to buy high and sell higher. We’re also forgetting about the state income tax.)

Add it up and you’ve got an annual cost difference of $92,000 a year. Yes, there could be tax savings from interest and real estate tax deductions. Unfortunately, much of the potential savings would be lost in the charming clauses of our federal income tax code, which limits deductions when it doesn’t make them disappear altogether. The code is so long, it is measured in megabytes (24) rather than simple pages.

Now consider the cost of dream vacations in California. Suppose a comfortable rental car at $100 a day. Suppose a visit to my personal favorite retreat, the Ventana Inn & Spa on Big Sur. Then again, substitute Auberge du Soleil in the wine country, a Four Seasons anywhere, or go north to the Whale Watch Inn in Gualala. Such places will set you back about $600 a day, including taxes.

So you’re spending $700 a day or about $5,000 a week. Add $3,000 for two first-class tickets from San Antonio to San Jose and you’re spending $8,000 for a lovely week in California, a week you can repeat 11 times a year, every year.

As I said, that’s more days of luxury vacation than most people have vacation days — and you get it just by choosing, very carefully, where you live.

Scott Burns (www.scottburns.com) has been a personal finance writer since 1977 and has been syndicated in newspapers across the United States since late 1980. Send your questions and comments about managing your wealth via e-mail to privateclubs@clubcorp.com.