Buying A Home In L.A. Isn't Impossible

Laura is from Oklahoma and wants to know if it's possible to buy a home in Los Angeles using Dave's formula. Dave says yes, but it will certainly be more difficult.

QUESTION: Laura in Los Angeles is from Oklahoma and wants to know if it’s possible to buy a home in Los Angeles using Dave’s formula. Dave says yes, but it will certainly be more difficult.

ANSWER: Sure. It’s just more difficult. Los Angeles is some of the more expensive real estate in the U.S., as you’ve observed. But Los Angeles, like any other area, has neighborhoods and what we call in urban economics the ring theory. If you drop a pebble in the center, the rings that go out, usually, generally speaking, the further you go out those rings, with exceptions, the cheaper property gets. That’s true somewhat in L.A., too, depending on what direction you’re going and other things like ocean views and mountains and that kind of junk. All in all, there are areas that are cheaper than other areas. Can somebody making $30,000 a year afford a home in L.A.? No, but they can’t afford one in Manhattan either. They don’t need to be living in Manhattan making $30,000 a year either.

What you’re discovering is it’s a different world than Oklahoma. A hundred grand doesn’t go as far, especially when you incorporate real estate costs into the equation. The other cost of living issues are higher in L.A., but they’re not dramatically higher. The big difference maker is real estate, and it’s certainly way down compared to what it was. Can I ever buy a house in Los Angeles using good common sense? The answer is yes, but you have to be very careful and much more wise. Just because you live in L.A. doesn’t mean you can be stupid and it works.

If you’re going to decide to live in L.A., some parts of your life are going to be different. There’s an expense to living there. That’s what it comes down to. One hundred thousand doesn’t do there what it does in Oklahoma. I’m sorry, but you don’t get a pass on common sense because you live in L.A. You don’t get a pass on doing smart things and saving money and doing it right. You just don’t. You still have to go do smart stuff. No, it doesn’t really change. It’s not my fault. It’s not my formula. The formula—the math stuff—is common sense stuff. It’s not something I invented.