I’m (not) rich
“All’s well that ends well. I mean, I’m rich now. So whadda I care?”
I was pacing around the living room as I’m wont to do on long phone calls. “I should try that,” she said. “Try what?” “Being rich.”
We were around half an hour in, and the conversation had turned to my 15 minutes of fame, which came courtesy of an article she wrote many moons ago. That story had the opposite of its intended effect: It made a mockery of its protagonist and a martyr of its villain. It also boosted the career of its byline. In other words, everyone came out better for it except me, a tragicomedic outcome I do her the courtesy of not mentioning.
“You are rich,” I told her. She jeered, but it’s true, particularly if you adopt a definition of “rich” that includes more than just what you could buy on your debit card without cashing in a portion of your company-matched retirement plan.
Maybe she doesn’t swap out German luxury cars on a whim or mismatch Chanel with MASTERMIND WORLD, but my iPhone photo album doesn’t boast any selfies with the Crown Prince of Saudi Arabia. And if I’ve ever toured Oman, I can’t remember straight away. They like me in Hilton Head, but they don’t know me in Jackson Hole, I’ve never interviewed David Byrne and last I checked, The New York Times hasn’t gotten around to profiling Heisenberg Report just yet (although thanks to her, The New Yorker profiled its author once upon a time).
“It’s all about life overhead,” I told her. “And mobility. $750,000 still gets you a mini-mansion down here.” She took that to mean I had a mini-mansion, which isn’t true. And wasn’t the point. But I was out of time. She allots me an hour for our biannual catchup calls, which is either generous or just an acknowledgement that there’s no such thing as a “short” phone call with a man prone to meandering, stream-of-consciousness-style monologues.
This year marks a decade since we “met,” and this month marks a year since we last spoke. We’re in one of our communications blackouts. They happen. And it’s always my fault. This one may be permanent. I don’t know. And I’m rich. So whadda I care?
The arb
I’m not rich. I’ve said it how many times over the years? A lot. If I had even $10,000 for every time I’ve said it, I’d be… well, rich.
To the extent my life can be described as posh, it’s a function of what one long-time reader recently called “lifestyle arbitrage.”
That characterization, from a September 9 comment, is a fantastically accurate characterization of my modus operandi. As soon as I read it, I knew the title of the next Monthly Letter.
I conduct lifestyle arbitrage as a matter of course. And with a lot of leverage. Only a tiny fraction of that leverage comes from actual borrowed money. The vast majority’s built in — part and parcel of the arb itself.
At the center of the strategy’s an annual income that’s multiples (not many multiples, otherwise I wouldn’t need the arb in the first place, but multiples) of the national median. I lever that up by locating myself in areas of the country where the median pay’s meaningfully, and in some cases dramatically, lower than the norm.
That’s the core of the arb, and it’s augmented and amplified by the minimization of “life overhead,” which is to say eschewing marriage and the children that tend to go along with it. There’s also a tax component: I’m a corporation, and if there’s any class of citizens America treats better than white males, it’s corporate citizens. I’m all three: A white, male corporation. Which entitles me to every advantage American capitalism has to offer.
Over the years, it’s become apparent to me that although readers understand how this life arb accrues, they don’t fully appreciate how large the multiplier effect is. That, in turn, explains why some readers occasionally struggle to grasp how someone who isn’t rich on any conventional definition of the term buys the things I buy. Or buys them regularly without going broke.
Early last year, for example, a reader from South Africa remarked, of the Chanel beanie I bought “in” Atlanta through a Thumbtack personal shopper, “you must have [a] hell of [a] side hustle or investing acumen to be buying $1,000 beanies.” “I was thinking that would make sense with about $10 million in wealth,” the same reader said.
To state the obvious, you don’t need a $10 million net worth to buy luxury hats. That beanie would’ve been $650 without the personal shopper’s fee and overnight shipping. Expensive? Sure. Offensive when there are people in America without enough to eat? Yes. Absolutely. But hardly the sole purview of someone worth eight figures.
Still, the implicit question merits an answer beyond the glib observation that I’ve been putting money aside in index funds since I was old enough to have a Vanguard account. I’ll defer — but not ignore — the side hustle question.
The table below compares my situation to “the extremes,” so to speak. Here, “extremes” means households with two working parents supporting two children who need paid care during the weekdays, living in three of the nation’s most expensive metros.
If you’re interested in the specifics used to calculate those figures, feel free to reach out and I can provide them. The inputs are based on, among other things, MIT’s Living Wage Calculator estimates for housing, food, healthcare, transportation, childcare and other necessities, together with federal, state and local taxes where they apply.
The big-picture takeaway is that when the comparison’s between two W-2 earner parents making $225,000 combined supporting two children who need paid care in three expensive metros and a single, childless S-corp owner whose business earns $225,000 before owner pay and business taxes in Columbia, South Carolina or Knoxville, Tennessee, the single, childless incorporated adult has anywhere between 3.8x and 10.1x as much money remaining after taxes and basic expenses.
The figure below shows you the dollar bridge for the most extreme example: The single, childless S-corp owner in Knoxville and the W-2 earner parents supporting two children with paid care in San Francisco.
The multipliers make the point emphatically (that’s the breakdown on the 10x), but I’d encourage readers to consider the actual dollar amounts — and what’s implicit in them in terms of lived experience.
$130,000 left over after taxes and basic expenses is a lot of money for one guy who’s given up on things like yachts, Italian sports cars and international travel. Once you resign yourself to the fact that you’re never going to know what it’s like to drive an 812 Ferrari through the streets of Monaco, $130,000 in spare cash may as well be $2 million.
Put differently, when you limit your luxury aspirations to localized travel, clothes and mid-sized, German luxury sedans, there isn’t a lot you can’t afford when you have nearly $11,000 in extra money left after paying your bills every month. And there’s almost nothing you can’t afford to finance when you can show that surplus on paper and you have 800 credit.
Do note: This is about more than housing costs. And it’s not just a story of fewer mouths to feed and child care expenses. Sure, those factors play a dominant role, but even holding household size constant at one adult and no children, the modeled costs of food, healthcare, community and recreation, and other necessities are higher in all three of the expensive metros compared to Columbia or Knoxville.
Wasting time
“Whaddaya think?”
Ignoring him for a beat, I pantomimed a kitchen inspection, knocking on cabinets, pressing on counters, swiveling the wall-mounted pot filler above the stove and peering up into the range hood.
I put on my “deliberative” face — eyes squinted, top teeth pressed lightly on an inwardly curled bottom lip — and murmured a tentative affirmation: “Mmmhmm.”
He followed me into the dining room, where I brushed my hand across some wainscoting, then knelt and feigned an examination of the engineered hardwood.
“You feel a bubble?” asked the Zillow agent whose Sunday afternoon I was in the process of hijacking. I looked up from a crouch: “Hmm?”
“If they don’t get the expansion gaps right, those planks can bubble up.”
“Oh, right, umm–” I was Fletch inspecting the plane. “It’s probably just the humidity,” I said, standing up and dusting off my hands.
We were touring a couple of new builds nestled in a backwoodsy South Carolina country club.
“It really is nice,” I mused, dropping the home inspector act. We gazed up at the exposed beams in a cathedral-ceilinged main living area. He concurred: “Oh yeah. This builder’s relatively new, but I sold one of his over the summer and the people are really happy.”
I tour a lot of homes and make inquiries about a lot more. Between physical tours and phone calls, I reckon I waste 15-20 hours a week of other people’s time pretending to buy property.
“Pretending” isn’t quite right. And as one Kentucky-based agent I’ve known for a couple of years quipped during a recent text exchange, the only person’s time I’m wasting is my own. At least, she noted, I could buy the homes I ask after. I never inquire about properties I can’t afford, and I enjoy go-anywhere mobility. So I’m not asking agents to participate in a fantasy.
Still, I kick off my property prospecting calls with an apologetic disclaimer. It goes something like this: “The unconditional odds of me actually buying this property are about 5% — high single-digits at most. I just wanna get that out there up front.”
For someone who’s outwardly pompous, I spend a lot of time apologizing for myself. I shouldn’t be so reflexively rueful, but the older I get, the less able I am to differentiate between healthy self-awareness and severest self-criticism. I tend towards the latter and call it erring on the side of caution.
In one of the sager scraps of wisdom he imparted to posterity, my father used to say we become caricatures of ourselves as we age. I can’t escape that fate, but I can stay apprised of the progression. And dial up the self-deprecating humor accordingly.
The agent turned off the lights, locked everything up and joined me on the front porch. “If you want, we can check that one out,” he said, motioning across the street to a half-built project with the same “modern rustic” aesthetic. “I’ve got the keybox code for it too. It’s the same builder.”
“Nah,” I said. “I get it. And it’s muddy over there.” Silence. “These don’t go in the mud,” I explained, pointing down to a new pair of Jordan 1 Mids trimmed in (ironically) mud-colored suede.
We walked over to our cars. “So here’s the thing. This guy–” I checked myself mid-sentence for political correctness. “This builder‘s got about a month to sell this thing.” I waved dismissively at the house we were just in. “If we get to Thanksgiving, he– they’re fucked until spring.”
The agent braved some delicate pushback. “I don’t know, I’ve done a lot of deals during the winter these past two years and–” I cut him off, holding my left hand up like a traffic cop: “Everybody says that, Andrew.”
He laughed, offered a conciliatory nod then tried to extract something definitive from me. “So what are you lookin’ to get?” “You mean in terms of concessions?” “Yeah.” “Well, it don’t need a new roof does it?” He stared at me blankly. I tried again. “It’s a new construction, Andrew. And it’s priced about right already. Find out if they have a lender relationship around here and whether they’ve been buyin’ down rates to clear inventory.”
“Got it,” he said, nodding emphatically. “So this would be a contingent sa–” “Yes,” I cut him off for at least the third time. “But don’t worry about that. I’ve got four-sides brick with a water view in an HOA neighborhood zoned for the best school districts about an hour and a half up the road.”
My goal, and this I didn’t spell out, was to make money on a move up. I hadn’t done the math, but if I could squeeze a desperate builder for the max buydown on a conventional loan, I reckoned it was within the realm of the possible to “get paid” for moving to the country club. Or at least not to pay up.
I carried on. “Mine can sell in the snow, on the off chance we get any. This one–” I waved again at the house we’d just toured “–can’t. It’s waaay the hell out here, it’s expensive for this area and this course–” I gestured to the hole-five tee box visible from the back deck, “–ain’t exactly Augusta, is it?”
I stopped. He waited to say anything, unsure if I was finished or whether I might just be pausing to catch my breath. “Ok, I’ll do some digging,” he said, finally. “Great. Let me know.” I presented my fist, which he instinctually bumped in keeping with the only surviving pandemic-era social convention.
“I really do appreciate your time,” I told him. “And sorry for dragging you out here on a Sunday.” He scoffed: “Dude, that’s my job. And it’s nice to meet a client like you. You know your stuff.” “Yeah,” I sighed, in a quasi-lament for the absurd circumstances that explain my decade-long stint as a macroeconomic documentarian.
“What was it you said you do for a livin’?” he wondered, as we parted ways. I clicked the unlock button on the side of my Beamer key fob, opened the driver’s side door and got in. “I didn’t,” I hollered. Then shut the door, backed out and drove away.
Where I lay my hat
The case for homeownership in America in the 2020s is about as strong as the case for a four-year college degree, which is to say not nearly as strong as it once was.
Still, I’d argue homeownership (and a four-year degree for that matter, but that’s another discussion) is mission critical. To forgo homeownership in America is to wittingly forfeit the only opportunity most people will ever have to lever up 5x on a half-million dollar asset.
As one reader reminded the audience here years ago, mortgage payments are a form of forced savings. Even in the earliest days of your mortgage, you’re still paying a non-trivial amount towards principal each month on a standard amortization schedule. If you pay even a little extra (i.e., more on top of what’s baked into your payment) to principal and the property manages to achieve anything at all in terms of annual price appreciation, you’ll build a home equity cushion fairly quickly. You’ll be surprised how impactful that cushion can be vis à vis your psychological well-being.
The problem is that homes are prohibitively expensive in America, even forgetting the cost of financing them. In some locales, prices are nothing short of outlandish, such that even a family with an annual income of nearly a quarter million dollars has no realistic chance of owning a respectable property.
“Respectable” is a subjective term. I have my criteria just like everyone has theirs. Rather than give you my personal checklist, I’ll just tell you how I evaluate potential properties. If the house (or downtown loft) doesn’t look like it should cost what it costs, I’m not interested. And as anyone who lives in America has surely noticed, there are fewer and fewer locales where most properties pass that eye test.
My advantage is mobility. There’s some paperwork involved when it comes to doing business in locales other than the state where you’re incorporated, but that’s what accountants, attorneys and, likely by next year, agentic AI services, are for.
If you don’t have that mobility, you have two choices: Shell out a lot of money for something you’d rather not own (and may well be embarrassed to live in) or don’t buy and eschew the benefits that accrue to homeowners, a Sophie’s choice to be sure.
The table below puts the situational comparison I used earlier — i.e., it compares two W-2 earner parents making $225,000 supporting two children who need paid care in three expensive metros and a single, childless S-corp owner whose business earns $225,000 before owner pay and business taxes in Columbia, South Carolina or Knoxville, Tennessee — in the context of the housing market.
Assuming no starting cash, a 20% down-payment target and a 50% savings rate on surplus income, the single, childless S-corp owner in Columbia has the down payment on the median local home in less than a year, whereas it’d take the Bay Area couple nearly 35 years at the modeled savings pace to have enough for a 20% down payment on the typical home in their backyard.
Note the “3.0” input in the yellow-shaded “saving years” cell. The “down-payment cash accumulated” column in the table reflects three years of savings at 50% of the annual after-tax, after-expenses surplus for the same situational comparison. The next three columns show you where in the local distribution of home values the S-corp-owning bachelor in the South and the two-child parents in the expensive metros would be shopping based solely on their capacity to fund a 20% downpayment.
With the (hardly insignificant) caveat that a funded 20% down payment doesn’t establish the ability to qualify for or carry the related mortgage, the S-corp owner in Columbia and Knoxville would have enough saved after just three years of squirreling away half his surplus to shop in the 90th-98th percentile of local homes.
The point isn’t to suggest that all you need to do to live like royalty in South Carolina or Tennessee is avoid marriage, not have children and cobble together a $225,000 annual income with the “right” tax structure. Even under some pretty aggressive back-end DTI assumptions, I can’t go out and buy a $950,000 home in Columbia, nor can I trade up to the loft I actually want in Knoxville.
Also, and as noted repeatedly above, the comparisons I used are extremes. They may or may not be realistic. If you live in New York or Boston or San Francisco, your employer’s going to take account of the local cost of living when deciding your pay, for example.
But I often find the best way to illustrate a broader point is to use a stark, just hopefully not cartoonish, juxtaposition. My guess (and it’s more than a hunch) is that if you talked to enough families living in America’s more expensive metros, you’d discover that in fact, the circumstances I used for my comparisons aren’t uncommon at all. You can surmise that simply by the proliferation of mainstream media articles lamenting the number of American families who live paycheck to paycheck despite annual incomes of $250,000 or even half a million.
Those families are in most cases stuck — unable to relocate due to their jobs. Not me, though. If, after making enough inquiries, I determine that local prices for what I’m trying to buy are simply too high to make the math work, I ask myself a simple question: Where are the prices cheaper?
Just so you remember
Florida.
I hadn’t been since the summer of 1997. I don’t remember much about that trip other than that Gianni Versace’s untimely death was plastered all over the local news.
Until last month, I’ve never had occasion to go back, but I’m traveling more lately. Thanks to Kitsch Register, trips and out-of-town dining are business expenses. My businesses, all of them, are integrated. And it was high time I made it down to Jacksonville to visit G.
Now 39, G.’s commitment to the cause — my cause, our cause — has never wavered since I recruited her one fateful evening after her hostessing shift at a little Italian restaurant in Knoxville. She was just 19 at the time.
Now, as then, our relationship’s purely platonic. As all business relationships must be to work. To be sure, she loves me. And I her. But not in an affectionate way, nor even in the way siblings love one another. Ours is a bond forged in something else. Something stronger, even, than intimacy or blood.
I stayed in St. Augustine on my trip. She’d recommended the Casa Monica downtown, even over The Ritz on Amelia Island. She was right about the hotel. It was great. My impression of downtown St. Augustine was mixed, though.
On the last night of my trip, we met for tacos just over the Bridge of Lions on Anastasia Island. She introduced me to her new romantic partner, who in turn got to meet, for the first time, her significant other’s 20-year business partner. “The man, the myth,” as G. jokingly presented me.
When the tacos were finished, the three of us lingered in the parking lot, exchanging mundane pleasantries. I thanked her partner, who’s deaf, for taking care of my longest-serving lieutenant. She made prayer hands and went around to their car, leaving G. and I to wrap it up.
“So, you gonna write about this trip?” G. wondered, with a chuckle. “Yes and no,” I said. “Do they get it? Your readers? Like–” she trailed off. “Get what? The big picture you mean?” “Yeah,” she said. “Yes and no,” I said again. She nodded, her lips turning up in an oblique smile: “Legend.”
“How is that business anyway?” she wondered. “What, the writing business?” “Yes.” “Eh, it pays the bills.” “Since when’s that ever been good enough for you?” she smirked. “Since never. But thanks to your 20 years of dedicated service, it’s never had to be,” I reminded her. She raised her right hand to her forehead in a mock salute: “What has been will be again. What has been done will be done again.” “Preach, sister,” I laughed.
We bid farewell under the failing Florida sun, and I settled into the Beamer for the short ride back to the Casa Monica. I made a right out of the parking lot, drove up onto the bridge and turned up the stereo. Track 5 from It’s Almost Dry sliced through the car speakers. “The purest snow, we sellin’ white privilege.” I dropped the 5 series into sport mode and pressed the accelerator. “The Book of Blow, just know: I’m the Genesis.”
