Abolutely. Before you even think about buying hosting etc, you need to make sure there is a market need and demand for your app. Otherwise you could spend a lot of time and money building something and not be able to make any sales when you are done.
I and others have posted before on the process of doing a market feasibility study here and if you want a list of more resources feel free to contact me here.
There is a lot you should pay attention to, the least of which would be your customers, beta testers, marketing partners etc.
There is a lot that goes into making a web app successful, but with the right dedication and the right product it can be done.
As far as hosting, you can get VPS hosting for around $50 per month. I perfer VPS over shared hosting for a few reasons:
Rackspace has a great offering for blended VPS cloud apps.
Once your app is making money it usually makes more financial sense to own your own hardware, and colo. For Colocation, I cannot recommend CalPOP more than enough! They are very inexpensive and the network is AMAZING! 24 tech access and very smart geeks!
You dont have to live in Los Angeles to use them, but its easier if you. Simply mail them your hardware, and pay 100 a month for TONS of bandwidth.
Best of luck on your venture.