Location Arbitrage

[Sam Harris]

I am going to the MathFin Career Fair at NYU on the 26th, but I haven't quit my current job yet. I was just thinking about how much would be enough to draw me away from my current career. I'm considering living in NYC, Chicago, or my first choice: Charlotte. So, I went to several cost of living calculators and figured out what they thought my current quality of life was worth in these three cities. The actual numbers may surprise you... they really surprised me.

Albuquerque, NM
Current Salary $ 85,511

New York, NY
CNN Money $174,490
Salary.com $210,628
Bankrate $173,510
City Rating $162,374

Charlotte, NC
CNN Money $ 77,103
Salary.com $ 95,536
Bankrate $ 78,492
City Rating $ 90,715

Chicago, IL
CNN Money $ 95,653
Salary.com $108,380
Bankrate $ 99,656
City Rating $104,757

I imagine it is lunacy to expect a starting quant to make $160k - $210k/yr in NYC, right? Do the incomes go up quickly? I mean I'm excited about working in finance, but I'm not going to take a huge pay cut to do it.

Thoughts?

 

[alain]

I imagine it is lunacy to expect a starting quant to make $160k - $210k/yr in NYC, right? Do the incomes go up quickly? I mean I'm excited about working in finance, but I'm not going to take a huge pay cut to do it.

Thoughts?

Remember this is total compensation: Salary + Bonus.

 

[Yuriy]

All these numbers are insane

Of course, $85 in NM and NY are different things. A lot depends on your lifestyle. The biggest difference is probably in Real Estate Check how much it would cost you to buy/rent a similar house in NYC.
Also, find the numbers for Albuquerque, then just use a simple formula

Your_$85K
--------------------------- X Cost_in_NY = Your_$$_Worth_in_NY
Cost_in_Albuquerque

That way you get an idea of how much you need to support your lifestyle.

Regarding incomes. They go up directly proportional to your performance. If you don't perform well, they fire you right away If you perform well, you might get a raise.

 

[Sam Harris]

All these numbers are insane

Of course, $85 in NM and NY are different things. A lot depends on your lifestyle. The biggest difference is probably in Real Estate Check how much it would cost you to buy/rent a similar house in NYC.
Also, find the numbers for Albuquerque, then just use a simple formula

Your_$85K
--------------------------- X Cost_in_NY = Your_$$_Worth_in_NY
Cost_in_Albuquerque

That way you get an idea of how much you need to support your lifestyle.

Regarding incomes. They go up directly proportional to your performance. If you don't perform well, they fire you right away If you perform well, you might get a raise.

That formula is what these websites do. Except in addition to real estate, they also consider the food, utilities, transportation, and healthcare. But since we're all analysts here, let's investigate their model. I hypothesize that their model takes the relative costs of these areas and the percentages they should represent in the median budget, then increase someone's entire income by that amount.

Let's test this theory.

One of the models (from CNN Money) gave this breakdown:

Groceries will cost: 39.136% more
Housing will cost: 253.755% more
Utilities will cost: 63.432% more
Transportation will cost: 15.658% more
Healthcare will cost: 28.23% more

If I take my current costs and multiply by these conversion factors:

Food: 6,000 to 8,340
Housing: 10,800 to 38,124
Utilities: 1,272 to 2,073
Transportation: 14,112 to 16,370
Healthcare: 4,800 to 6,144
Total: 36,984 to 71,051

This is an increase of 91%. If I take $85,511 and multiply by 191%, I get $164,180...Their model says I need $174,490. Given the variations I may have from the median family in my budget, this seems like a reasonable error. We will fail to reject my hypothesis.

I would say that 30% of my income is disposable and most of that goes to investing for retirement. 30% of 85k going to retirement is really just $25.5k a year and it's not "fair" to say that this number must increase by the same percentage as housing and utilities. So while I could say that housing, utilities, transportation, healthcare, and food would have to go up by a certain percentage in order to maintain my current lifestyle, the disposable income would not. Therefore, a better model would have discretionary spending as fixed with mandatory spending as a linear relationship.

Now what about the other failures of this model? It yields a delta of $34,067, however I seriously doubt my transportation costs will remain that high given that I will not need two cars living in Manhattan. A metro ticket is what, $76/mo x 2 for my wife and myself netting $1,824/yr. Of course there are taxis, but not $14,546 worth I hope. Also, I do not NEED an 1800sqft house with 2 car garage and a 1/2 acre of land. I am forced to take it at a cost of $900/mo here because the military stipulates where I will live and they attempt to meet the needs of the average officer. So, how much would it cost for a nice 800-1000sqft condo? Is it really $3,177/mo? Just skimming craigslist, it seems that $2400 is a more accurate number.

So integrating $28,800 for housing and ~$3,000 for transportation yields

Total: 36,984 to 48,357

This gives a delta of $11,373. $85k + $11k = $96k which seems reasonable given what I've heard through the grapevine. That means that any bonuses can be directly invested into retirement.

 

[mannya]

This gives a delta of $11,373. $85k + $11k = $96k which seems reasonable given what I've heard through the grapevine. That means that any bonuses can be directly invested into retirement.

There are some pieces of the CNN's model that I don't agree with.

I lived in Florida and Arizona, and find that certian things are more expensive there than in New York.

Starting from groceries. It is not always the case that they cost more in NYC. When I was in Florida, tomatos cost 3-4 dollars per pound, there is no way they cost that much in NYC. Of course, if you go to expensive restaurants every week, you'll find that you need a lot for food

Also, my utilities in Florida were like 150 to 200, part of the amount was due to the cooler in the house that had to be on 24/7 because its just hot in Florida. In NYC, unless you have your own house, you may find yourself not paying for heating/water and even gas. So your summer bill is probably the highest since you pay for air conditioner, but thats only like 3 months out of 12.

 

[joe_bradley]

The numbers are insane and I don't know if they have anything to do with how people actually live in NYC, and elsewhere. I still recall an article that compared cost-of-living for a couple in New York versus Houston... the "representative" family from New York had a large apartment in the West Village and was paying for a garage for their car. ????? How is that supposed to be "representative"?

When I moved here I bought what was then a cheap co-op in Jackson Heights, Queens. Pretty close to midtown, and a great choice if you're not set on living in a glamour neighborhood. If I had given up my car - which I really didn't need - my cost of living would have been LOWER than it was when I lived in Houston, and Houston is usually the poster child for low cost-of-living.

It depends where you want to live more than anything else. Part of the reason I was willing to make tradeoffs is because I wanted to live in New York. You want to live in Charlotte, live in Charlotte. Don't bother doing the numbers, because if your really want to live in Charlotte, you're going to subconsciously massage the numbers until they tell you to live in Charlotte. ;-)

Joe

 

[Sam Harris]

It depends where you want to live more than anything else. Part of the reason I was willing to make tradeoffs is because I wanted to live in New York. You want to live in Charlotte, live in Charlotte. Don't bother doing the numbers, because if your really want to live in Charlotte, you're going to subconsciously massage the numbers until they tell you to live in Charlotte. ;-)

My primary reasons for wanting to live in Charlotte involve racing. I have been racing since 1997 and recently was Runner Up National Champion in an amateur league called NASA.

I also absolutely love driving my Porsche every day. It's very therapeutic for me, and I know that in NYC, I probably won't even own a car. So yes, there are emotional attachments to Charlotte.

However--as I stated in that last post--from examining the way in which the models are constructed, those motivations really shouldn't involve money. In a very low cost of living environment like Charlotte, wages are deflated representatively. A starting Quant at Wachovia can expect $50k a year. Percentage wise, this should be a similar income. However, everything is scaled--including disposable income. And the last time I checked, an iPod costs the same thing in New York that it does in Charlotte. So New York is a more profitable location for a person to live and work. There are also more jobs. Charlotte is an exploding financial center, and may already exceed New York for total money under management. But much of that is real estate and corporate banking... not investment banking. Even Bank of America's investment bank (Banc of America) has its headquarters in NYC. To work in financial markets, it seems that NYC is where all the "action" is.

Also, I grew up in the absolute antithesis of NYC. When I was there, Landrum, SC had a population of around a thousand. It is now slightly over two thousand. I love variety and have moved 30 times since my 17th birthday... largely due to the military, but I have welcomed the changes.

So, I have a lot of reasons to go to New York, too. If I had to pick one place to settle down and live for the rest of my life, it would probably be Charlotte. But for the next 5 yrs, I can see NYC being a lot of fun. Who knows, maybe I'll fall in love with the Big Apple.

 

[Yuriy]

I agree with Joe, location does matter a lot. I lived in Florida, but did not like it very much. And I will have to really like something about the company if I were to go back to Florida to live and work there.

Also, depending on your preference, you can rent an apartment in Queens or Brooklyn for less than $2000 a month.

 

[Andy Nguyen]

My primary reasons for wanting to live in Charlotte involve racing. I have been racing since 1997 and recently was Runner Up National Champion in an amateur league called NASA.

Which one is you ? The one on the left or right ? You can't be the one in the middle

I also absolutely love driving my Porsche every day. It's very therapeutic for me, and I know that in NYC, I probably won't even own a car.

foggetaboutit
Parking, traffic and tickets would be a nightmare.

So, I have a lot of reasons to go to New York, too. If I had to pick one place to settle down and live for the rest of my life, it would probably be Charlotte. But for the next 5 yrs, I can see NYC being a lot of fun. Who knows, maybe I'll fall in love with the Big Apple.

Not sure how young/old you are but if you love action, NYC is the place to be. Thousands of young graduates come to NYC to work in finance every year. I believe the biggest thing that drives people out is the high cost of housing here. If it's affordable, most will stay put and start a family.

 

[Andy Nguyen]

Which one is you ? The one on the left or right ?

Which one looks like he's in the military? :wall

 

[Sam Harris]

foggetaboutit
Parking, traffic and tickets would be a nightmare.

I imagine that driving a car every day would be a nightmare, but how hard would it be to keep my car and just use it for weekend escapes? How much does a garage or safe covered parking cost? What about insurance and property tax? (I really don't want to give up my car.)

 

[Yuriy]

Which one looks like he's in the military? :wall

The one on the left looks very much like those guards that I saw guarding the Royal Palace in Copenhagen, Denmark

 

[Yuriy]

I imagine that driving a car every day would be a nightmare, but how hard would it be to keep my car and just use it for weekend escapes? How much does a garage or safe covered parking cost? What about insurance and property tax? (I really don't want to give up my car.)

Well... you can live in NYC and find a job on Long Island. My friend lives in Brooklyn and works in Port Washington he drives both ways, maybe half the time he sits in traffic but at least it is some driving experience So not all is lost for you :D

 

[alain]

How much does a garage or safe covered parking cost? What about insurance and property tax? (I really don't want to give up my car.)

depending on where you live, it could be expensive, really expensive

 

[joe_bradley]

Bah, humbug. I owned a car for years in the city.

Alain's right though, it depends where you live.

Check out some of the "boring" neighborhoods in Queens: Jackson Heights, Forest Hills, Kew Gardens, etc. All are 1/2 hour or less from midtown by subway. Live there and you're talking about rents in the 1000-1800 range, and you can usually get your car garaged for $200-250/mo. This will be the monthly rate at a garage with an attendant. Your biggest bump in cost will be insurance, and that's mainly because of liability.

The problem you will have is that there won't be any place where you can "open it up." Traffic limits in the expressways close to NYC are 55mph or less.

As far as racing clubs, given the enormous number of rich people around, I'd be surprised if you couldn't find something here, though you'd definitely want to find out before moving! I don't know if you're a spectator though: as is famously known, recent efforts to get NASCAR in Staten Island flopped.

 

[Andy Nguyen]

I don't know if you're a spectator though: as is famously known, recent efforts to get NASCAR in Staten Island flopped.

You still have Poconos and Delaware. I think there is a Nascar race somewhere upstate NY as well.

 

[Yuriy]

Check out some of the "boring" neighborhoods in Queens: Jackson Heights, Forest Hills, Kew Gardens, etc.

Joe, why do you say they are boring?
I'm thinking about moving to Kew Gardens or Forest Hills because LIRR trains stop there.

 

[doug reich]

If anyone is still interested in this thread...

nycgarages.com is a great resource for finding parking in Manhattan. You can really get shafted; I probably would have paid $200 more per month if I not for that site.

My car insurance is about twice what it was in Los Angeles, but I'm 22, so it's expensive either way.

Also, the scheduled maintenance on the car is much higher here than it was in LA ($250 vs. $400 for the most expensive periods).

Driving in the city is pretty annoying (and unless you want to fork over the dough, parking is more of a pain), but usually faster if you're not going to midtown during rush hour. Getting into and out of the city is even worse.

 

[Andy Nguyen]

Driving in the city is pretty annoying (and unless you want to fork over the dough, parking is more of a pain), but usually faster if you're not going to midtown during rush hour. Getting into and out of the city is even worse.
Having a car in the city is a liability and luxury. Between finding parking, feeding meter, stuck in traffic, paying insurance, tickets, monthly garage, GAS and occasionally breaking, it will get to a point that owning a car does not make sense.
When I walk past Rockefeller Center parking and see the sign "Specials : $9.99 for up to 30 minutes" every morning, it reminds me of how expensive it can really get.