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Most people that move to Los Angeles for a movie career are better off renting an apartment than buying a house. For one thing, most people won’t be successful in their bid for stardom and eventually go back to wherever it is they came from. When it is time to leave town and return home, a owning a house can make it difficult to move, especially in a bad housing market like we’ve seen for the past couple of years.

But of those who stay, many inevitably start thinking about buying a home. The question you must ask yourself is: How much house can I afford to buy?

Household Income Multiple
Here is an article on Investipedia titled When Owning Your Home Doesn’t Pay. The article has a really handy table labeled Maximum Median Home Price to Median Household Income Multiple. That is quite a mouthful, so I’ll explain what it means.

The table uses a maximum debt-to-income ratio of 28%, which is the number used to qualify for Fannie Mae and Freddie Mac loans. This is considered a prudent lending standard. History has shown that beyond 28% debt-to-income people have trouble paying their bills and are more likely to run into trouble paying their mortgage. The table shows the Household Income Multiple for various mortgage rates. Here is how to use the income multiple.

No Affordable Homes in LA for Most Single Wage Earners
Suppose you have a full time job and you earn $20 per hour plus benefits including vacation, holidays and sick days. You gross annual income is $41,600. As I wrote this in February 2010, 30-year fixed mortgages rates are 5.07%. From the chart in the Investopedia.com link that would give a household income multiple of about 4.3

Multiplying 4.3 times your annual gross income, the maximum home you can afford is $178,800. I did a search on Redfin for homes under $175K. It came up with over 500 results. They were clustered in the San Fernando Valley, South Central LA and East LA. Some were homes and some were condos. You can find 1000 square foot homes in south central for around $150K, but I would rule out south and east LA for anyone that is pursuing a film career.

The San Fernando Valley had 184 results that were mostly condos but a few homes also. Many condos are listed between 100K and 150K. Condos got hit hard in the housing bust and are way down in price from a few years ago. But again, the neighborhoods might not be the best choice for up and coming actors. The are some serious gang problems in the LA including the Valley.

More Choices for Multi-Income Households
Suppose you are married and your spouse also works. Let’s say your spouse also earns $41,600 pert year. Your combined income is $83,200. Now you can afford to buy a house for $357,760.

When I searched Redfin for homes between $250K and $350K there were a lot of choices. The Valley had 496 results. In the west valley there were mostly condos. The east Valley had some houses.

Unfortunately, the most desirable parts of Los Angeles came up a blank. There were a few houses in Koreatown, but nothing in Los Feliz, Hollywood, West Hollywood, Beverly Hills, Westwood or Santa Monica. Those are the best places to live for actors.

Still Better To Rent
What have we learned? If you and single and make about $40K per year, homes in desirable LA neighborhoods are simply not affordable.

If you are part of a two-income household, the are affordable homes in LA, but again maybe not where you want to live. Perhaps you can find something near the Burbank airport or the west Valley around Canoga Park or Winnetka. But even with a two income household it looks like you have to rent to live in desirable areas.

My suggestion at this time would be to rent. Maybe a year from now prices will have come down some more making homes more affordable.

Redfin is a good place to look for homes in Los Angeles. In southern California, they also cover Orange County and San Diego.

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