When I was in my mid-to-late 20s, I saw an opportunity to save a big chunk of cash by living in a relatively low-rent apartment in an area undergoing urban gentrification, but it came with an important trade-off. It was very close to a high-crime neighborhood, and in a mildly sketchy area itself. Since it was a big opportunity to save lots of money, I’ve resolved to tell you all about my “geoarbitrage” experience.
Choices, Choices, Choices
At the time, I was in the very beginning of my legal career, and had gotten a job at a big law firm in town. I was a typical young urban professional (yuppie?). Needing to move, I had several options.
The first was to live in the ritziest neighborhood I could afford, in a nice, new building. I checked it out, and the rent was about $2,800 for a two-bedroom in a low-crime district with shops, restaurants, and bars withing walking distance. I could afford it, but it would have meant I’d be stretched to the limit.
Option number two was to live in an older building in the same swanky area. I’d still have the shops, restaurants, and bars, but my apartment would feature somewhat cheap rent (about $1,600-$1,800 per month). However, it would be an older flat; not nasty, but with outdated furniture and fixtures and whatnot. Functional, but I’d have to settle for a leaky faucet, squeaky elevator, and the occasional flickering light bulb. Not bad, but not the young urban professional ideal.
Behind door number three was an intriguing option: a nice, new building in a gentrifying area very close to a high-crime district. The building was awfully nice, with shops and restaurants within the complex it was at. Everything looked and smelled new. And the rent! It was just $1,200. However, the surrounding area was somewhat dangerous and not walkable at night (though safe to drive through), and about one big block away there was a sketchier neighborhood, and two blocks away a truly dangerous one. (The complex I was considering was safe, with security guards, cameras, key-cards, good lighting, and restricted-access parking).
I chose the cheap rent; after all, it meant living in a great apartment, while saving a whopping $19,200 every year! Here’s how my adventure in “intracity” geoarbitrage went.
Urban Gentrification and Intracity Geoarbitrage
What Is Urban Gentrification?
Urban gentrification is the controversial phenomenon that takes place when low-income neighborhoods start to become higher-income. As stated on PBS, “gentrification is a general term for the arrival of wealthier people in an existing urban district, a related increase in rents and property values, and changes in the district’s character and culture”.
As far as I’ve seen it in practice, it tends to start when investors buy dilapidated buildings on the outer fringes of low-income neighborhoods, and turn them into nice, “new” residential buildings (either by demolition or renovation). Or, it can also start when hipsters and artists start renting commercial properties in the same areas, attracting higher-income clientele and giving them a “cool” vibe.
Art in Miami’s Wynwood District (an area in late-stage urban gentrification)
As wealthier people looking to save money on rent start moving in, others are attracted to the area, and it gradually “improves”. I say this is controversial, because some say that it makes neighborhoods lose their character, and leads to the displacement of lower-income residents as their rents are jacked up. For example, investors can buy entire buildings and stop renewing leases; once they’re up, tenants are told to move until none are left, and then the building is demolished and a “nicer” one built in its place. In that way, richer residents replace poorer ones.
What Is Geoarbitrage?
Geoarbitrage (a term I first read about on Freedom is Groovy) is essentially the practice of lowering your expenses by moving from an area with a higher cost of living to one with a lower cost of living. While I’ve normally read about it in the context of moving from one city (or even country) to another, I think it can also be applied to moving from an expensive neighborhood in a city to a cheaper one within the same city. I’ll call that “intracity” geoarbitrage.
One of the ways intracity geoarbitrage takes place is through urban gentrification, as higher-income people wanting lower rents move to gentrifying neighborhoods. I’m not saying this is good or bad in a large-scale, “social” sense. (It can probably be either, depending on the circumstances). I’m saying I did it (in a particular neighborhood where it was widely considered a good thing), and can tell you how it was.
Gentrifying Neighborhoods and My Experience
The Good
Cost! Like I said, my rent was very low – less than half of what the same apartment would have cost me in a ritzy area. The place I did rent was very nice, with lots of amenities, including a great view and being situated in a secure, multi-building mixed-use complex. Downstairs, there was a gym, supermarket, restaurants, and some shops. And I was not the only young urban professional there – many others had the same idea I did.
I was also in a centrally-located area, with easy access to highways and proximity to the ritzy area (about 5-10 minutes by car).
The Bad
Crime. Not in the sense of me being victimized – I never experienced it directly. However, I could see and hear it.
My complex was in an area in the beginning stages of gentrification, and there were lingering elements of street crime and urban decay in the area (and I’m not saying that all low-income neighborhoods are high on street crime, but in this case, it was). Drug addicts walked around like zombies and harassed passersby, and I could frequently hear people aggressively yelling at each other. The security guards kept them out of my complex, but they were “right on the doorstep”.
One day I even saw a fight from my window, right across the street from my building. Not a low-level fight – a nasty one, where one guy was verbally abusing a woman. Another guy came out of a nearby business to stop him, and the abuser pulled out a knife. Then, the good Samaritan punched him in the face and knocked him to the ground, after which he stood up and ran away.
Not a nice thing to see.
But what I hated the most was the gunfire. The complex was one long city block away from a sketchier area, and two blocks away from a really dangerous one. Because of that, around twice a month, I heard gunfire coming from most dangerous neighborhood. No bullets reached my building (as far as I know), but it was still a pretty nerve-wracking experience.
One night, I even saw a big police deployment less than a block away. There were helicopters and searchlights and everything. I later heard they were looking for a murderer in the area.
Again, nothing ever happened to me or any resident I knew of, and it was safe to drive in and out and there were guards constantly patrolling the complex. But it was certainly unpleasant to have all that ugliness very close to you.
The Ugly
The surrounding area. I could see multiple abandoned, graffiti-laden buildings from my windows. Also, the avenue my complex was on was full of even more abandoned buildings, as well as dilapidated shops. It wasn’t absolutely terrible, but it wasn’t too nice, either.
It looked kinda like this one block away
I also have to say that, years later, I realized it took a psychological toll on me. In general, it made me somewhat more negative, anxious, and aware of the ugly side of life. So, if you decide to go this route, I would counsel that you expect that it might tax you in this way, and perhaps take proactive measures to relieve anxiety.
Was the Cheap Rent Worth It?
Mostly. I lived there for about 2.5 years, saving something like $45,000-$50,000! Money in the bank every month.
That put me in a great financial position, laying the foundation for married life and our first home purchase. Had we not had that extra cash, there’s a good chance we would have had to make much more compromises when house hunting than we did. A classic example of mild short-term pain for long-term gain.
Summing It Up
I’d highly recommend that you save money on rent by considering gentrifying neighborhoods, and therefore doing a little intracity geoarbitrage. Of course, I’d advise being careful and exercising good judgment – if the area is too dangerous, it’s not worth it. But if the danger is well-contained (and it’s safe to drive in and out), I’d say go for it.
What do you think about urban gentrification? Would you save money on rent by trying this kind of geoarbitrage, by living in gentrifying neighborhoods?
Further reading:
- Living in a Gentrifying Neighborhood will Save You Money at Birds of a FIRE
- Should You Rent an Apartment from a Person or Company?
Last update: 1/6/2020
Interesting story. Just one of many personal/personal finance choices we face along the journey. Tom
Hey Tom,
Thanks! In our case, it was worth it.
Cheers,
Miguel
I’d try it out if I were single. I see a lot of this in parts of DC and Baltimore. It’s a step in a good direction and you get the benefit of lower rent – like a win win!
Hey SMM,
It was definitely a win for us. The savings were worth it, and the building complex itself was safe.
Cheers,
Miguel
Glad you lived to tell the story! 🙂 I agree with SMM. If single, it may be worth it. With a wife and kids, probably not so much. You saved some serious cash though! $$$$$
Hey Mr. DS,
Thanks; the building and apartment themselves were fine – as far as I know, there were never any incidents with anyone. But the area outside was somewhat sketchy.
Cheers,
Miguel
I did this for the last year. People always reacted with surprise when I told them where I lived. I described it as “the hood, but not the ghetto”. Shootings and other crimes still happened in my neighborhood, but I never really felt too unsafe. The house was cheap. I was the “first wave” of gentrification. My neighbors were pretty much all poor renters, but I can see the neighborhood turning over eventually as people renovate the big, beautiful historic homes into their one family glory. It’s going to take a while though!
Hey Gwen,
Wow, I don’t think I’d do it if it meant living in a house. I only felt safe because we were in a very secured complex. But living in a gentrifying neighborhood can definitely save you big bucks on one of your biggest expenses – rent.
Cheers,
Miguel
I probably would not mind doing this for myself but definitely not for our kids. My wife and I will never have peace of mind. Did you have to purchase a survival kit?
Her Bernz,
It definitely has its trade-offs. We felt safe because the complex had guards, gates, cameras, etc., and it was very big (about 6 apartment towers full of people). So it was a community within a city. We didn’t get a survival kit, but we did get an extra alarm that would sound if the door to the apartment was opened.
Cheers,
Miguel
I recently moved into a less desirable neighborhood. But upon reading this article, it doesn’t feel all that bad. No crime here — at least not that I’ve ever seen.
Def would not move into a neighborhood like that, even with a partner! I’d be too stressed out!
Props on saving that money though!
Hey Olivia,
Thanks! We felt safe, under the circumstances. The complex was like a mini-city, with about 6 apartment towers and lots of guards, gates, cameras, and other security measures. To get into the apartment, you had to use an electronic keycard to enter the building, plus another one for the elevator, plus then your apartment key. Also, it was a 20-second drive to the highway on-ramp.
So overall, the complex itself felt safe, and the savings were awesome 🙂 I think it’s an individual judgment, according to the particular circumstances.
Cheers,
Miguel
I love it, Miguel. Thanks for the shout out. I’m very flattered. I think you coined another variant of geoarbitrage. Intracity geoarbitrage is the perfect example of trading a little less safety for a lot more savings. I often think about how a younger Mr. Groovy would have taken advantage of this concept. In my mind, I would have done what you did, but I think I would have changed into some real sketchy clothing before I returned home. This way I would have sort of looked like I belonged in the neighborhood. Did that ever cross your mind? Dressing down before you entered or exited your apartment building? Intracity geoarbitrage is a wonderful strategy. But you may not want to advertise that you’re part of the gentrification crowd. Anyway, those are my pathetic two cents. Awesome post, my friend. Cheers.
Hey Mr. Groovy,
Thanks! I always drove into and out of the complex, and so didn’t change clothes. When someone came to pick me up, I always waited right on the threshold, in view of the security guards.
I think gentrification can have good and bad sides. When it means that a derelict part of the city is being reinvigorated, I’d say it’s probably good. As far as I know, this was the case with my complex, because the area had lots of abandoned buildings and needed renewal. To my knowledge, people weren’t pushed out to make space for the buildings, and the general consensus was that it was considered a good addition to the area.
Cheers,
Miguel
Whoa, cool story. You definitely saved a pretty penny! Glad you never had to deal with bullets flying through your windows. 🙂
Thanks Michael!
Yup, just heard the bullets; never felt them 🙂 I think the savings were definitely worth it.
Cheers,
Miguel
A good read! I love hearing people’s stories. I had a similar situation at my apartment when I was in the city as well. Not nearly as bad, but I did have bars on my windows and I was within a couple blocks of a sketchy area. My mother about had a heart attack when she saw my place for the first time. Lol!
Thanks Michelle!
Indeed, it’s a delicate balance. Close enough to be cheap, but not so close as to be dangerous. I felt safe because it was a big, multi-building complex with lots of security. If it had been a house or single building, I can’t say I would have done it.
I hope you were able to get a good deal when you did it! 🙂
Cheers,
Miguel
Gosh, hearing gunfire would make me be scared to even leave my apartment! Thanks for sharing your story.
Hey GYM,
Yeah, it was definitely unpleasant, but I grew up in a place where crime was on the news a lot, so I guess I was kind of desensitized to it…
Thanks for stopping by,
Miguel
I find this obscene. We have our elderly poor struggling to live on less than $800 each month, our working poor struggling to live on less than $1500 each month, and here we have someone bragging about saving $1600 per month on rent. It must have really been worth it to endure the horror of seeing real life from your highly guarded Windows. I am only a middle-income educator, but I say let me be where I can help another human being. The rich can stay in their safe, brightly lit towers..
Huh? What did I do wrong here?
You don’t know this, but (1) I’ve put in my fair share of pro bono contributions as a lawyer, including direct work and donations to legal aid organizations; (2) lots of my clients are indigent, and I’m proud to have made a big difference in most of their lives; (3) I’ve donated thousands of dollars to the less fortunate.
Are you saying that it’s wrong to follow the rules and work hard and train to be a well-paid professional, and then spend your money on nice housing? (By the way, the complex this article covers was widely considered to be a good thing for the area, which was dilapidated).
I honestly don’t understand what you’re trying to say. That everyone should live in the lowest-income area of their city? That nobody should have nice things?
And, I’m not bragging about my rent savings. I mention the numbers because this site is meant to provide actionable information, and so I try to stay away from the abstract. Are you saying that it’s wrong to be ambitious and plan your financial life?
And I’m not rich – but I work and save money and build wealth (and maybe one day will be wealthy), and make no apologies for that. I work very hard, pay my taxes, and follow the rules. If you think that’s wrong, then we’ll have to agree to disagree.
Respectfully,
Miguel