How to Start Investing in Condos: A Simple Step-By-Step Guide

Looking for an easy, affordable and reliable way to make money investing in real estate?

Condos can be a terrific rental property investment, especially if you are new to real estate investing, because they are cheaper and easier to maintain and there are usually plenty to choose from. They can also be easier to rent out because of their lower rents, great amenities and locations that are typically close to city centers.

This article is going to provide a step-by-step guide to help you buy your first investment condo. We are going to cover the following 6 steps:

Why Invest in Condos?

Like with other forms of real estate investing, condo investing also has a ton of financial benefits, include monthly cash flow, appreciation, tax shelters, mortgage payments made by your tenants, and mortgages that allow to you magnify your returns through the power of leverage, but they have their own unique benefits, especially if you want to use Airbnb as a rental strategy

I happen to own nine condos and have been investing for over a decade in real estate.  I can say with confidence that they have been great investments for me.  All of my condos have positive cash flow, have risen in value significantly, and are mostly hassle-free at this point (even though I manage them on my own).

In my experience, getting started is the hardest part and takes some preparation, but I will explain every step along the way so you have a roadmap to your first condominium purchase. 

Let’s get started!

This post may contain affiliate links. If you click on a link and complete a transaction, I may make a small commission at no extra cost to you. 

The information contained in this post is for informational purposes only. It is not a recommendation to buy or invest, and it is not financial, investment, legal, or tax advice. You should seek the advice of a qualified professional before making any investment or other decisions relating to the topics covered by this article.

Step 1: Get Your Financial House in Order (Down Payments, Credit Scores, Etc.)

Get a Down Payment

One of the nice things about investing in real estate is that you do not need to pay the entire purchase price in cash.  For condos, you typically can buy one putting just 20% (or in some cases 25%) down.  The bank can finance the rest.  

Still, for most people looking to invest in real estate, getting the down payment is by far the biggest hurdle.  Because of this, I am going to devote a good amount of time to giving you some great ideas on how to clear this hurdle.

Set Up a Savings Account

So, how do you acquire the down payment?  The obvious choice is just hunkering down and saving it.  To do that, you may want to start by parking your money in an online high yield checking or savings account, not at your regular brick and mortar bank.

Aspiration is an option that you may want to explore. If you happen to be socially or environmentally conscious, they seem committed to that as well. 

Aspiration offers digital banking services, no fees, unlimited free ATM withdrawals, and unlimited cash back on debit card spending. They also give 10% of their earnings to charity.

Ok, so you have your high yield savings account.  What now?  Well obviously, you should start putting money into it.  This is the hard part, but I have collected some actionable tips you can use to get your goal faster 

Jump Start Your Savings

The first thing you should do is put in a sizable deposit to jumpstart your savings. Where do you get the money to do that?  You can start by selling things you don't want or need.  

This can all be done very conveniently online.  To get started, check out these 10 quick and easy ways to raise cash fast by selling your unwanted items online.   

Now that you have a nice bit of cash in your savings account, it is time to build it up as fast as possible.

Build Up Your Savings With Passive Income Streams

There are two interesting side gigs that you may want to explore to speed up your savings.  First, you can rent out your car when you are not using it through Turo or Hyrecar.  I wrote an article exploring that here.  

Another novel (and super passive) way to make extra money is by renting out your extra storage space (e.g., your basement, closet, or even parking space) on Neighbor.  Check out my article on that here.  

For even more great ideas, I put together a list of 15 truly passive income ideas that require no money to start.  I carefully edited this list to include only really passive income ideas that don't require any money, specialized knowledge, or massive investments of time and energy.

Use Existing Tax-Advantaged Account (Advanced Strategy)

If you already have some savings, but it's in an IRA, one little-known strategy is using funds from that IRA to purchase a property.  This is a real thing and I started doing it back in 2012 for three of my rentals.  

I have written an article about investing in real estate through the use of a self-directed IRA and it provides an overview of the strategy and some tips on how to get started.  

In addition to the down payment, you should have money set aside for closing costs and whatever expenses you need to fix up the property before you put it on the rental market.  

Finally, you should reserve a bit of money to cover unexpected costs that may arise during the tenancy, including repairs, etc.  You don’t want your rental business to collapse because of poor planning.

Who Needs a Down Payment Anyway?

If all of this sounds too hard or you are just not in a position to save money for a down payment, don’t give up hope.  I collected a list of 15 ways to invest in rental properties with no money down.  

You may find some ideas there that can help you get started even if you don't have (or can't get) money for a down payment. 

If you find it a challenge to save because you have a low income, there is one stunningly good tip (#11) for you in that article.  Definitely worth checking out!  

Get Your Credit in Shape

As you start building up that down payment, you should look into your credit profile. You will have access to the best interest rates on your mortgage if your credit is top-notch.  This could save you a ton of money over the long run, so getting your credit in shape is an important step in the process.  

The first step is checking your credit report and credit score.  The FTC requires the three credit reporting agencies to provide a free credit report to you every 12 months.  You can get your free credit report here.  

You will have to go to a different source for your credit score.  Experian offers a low-cost option for that.  If your credit is solid, that’s great.  You are ahead of the game!

But if your credit score is not as high as you’d like, take a look at your credit report to see what needs to be addressed.  You can steadily raise your score over time while saving for the down payment.

Generally speaking, make sure you pay your bills on time – that seems to be the most important factor.

If you are on an aggressive timeline and looking for an immediate boost, Experian offers a product that helps raise your score instantly.

Step 2: Find a Great Real Estate Agent (This is Key)

The second step in condo investing is finding a great real estate agent.  I cannot emphasize enough how important this is.  You should find someone who is looking out for your best interest and who views you as a long term potential client.  I would interview several agents to find one who has the following:

  • Experience and success in the industry (at least five years, if possible)
  • Deep familiarity with the neighborhoods you are considering (including, of course, the condo communities in that area)
  • Experience working with real estate investors (or happens to be a real estate investor)
  • Rapport and responsiveness

Let the agent know your plans. Show them how serious you are. 

Some agents don't like working with investors because they are worried they are just tire-kickers. Having a clear plan, down payment and solid credit will show the agent that you are ready, willing, and able to buy an investment condo and more importantly that you are a serious buyer and won't waste their time.

Step 3: Select Your Target Markets (Location Is Everything)

With the help of your real estate agent, figure out what neighborhoods you want to target.  Obviously, you should pick areas that have a decent number of condo communities.  If this is your first rental property, you may want to stick to areas near you.  All of my condos are within 15 minutes of my house which really makes everything easier. 

Some of the additional factors you should consider are:

  • Reputation and overall desirability of the neighborhood (good school districts are a plus)
  • Population and jobs are stable or growing
  • A robust tenant population exists.  This free website lists several resources you can use to determine that. 

If you invest nearby, you should already have a pretty good sense of what neighborhoods are suitable vs. what neighborhoods are in decline and should be avoided (and, of course, your real estate agent will probably have even more expertise).

But another great resource you can check out is city-data.com. They have great demographic information about each neighborhood, including median income, unemployment rates, schools, and so much. Best of all, it's free.

Step 4: Analyze Your Condo (Cash Flow, Appreciation and Vacancy Analysis Tips)

Now that you have selected the neighborhoods you want to focus on, you should figure out what your price point and other key criteria are going to be for the search.  They could include the number of bedrooms, types of amenities, proximity to major roads, etc. 

At this time, you may also want to start the mortgage application process, including obtaining a pre-approval letter. 

Your agent may know of a good lender or mortgage broker.  Or you can find one yourself by doing a simple search online.  

I would definitely comparison shop to get the best price and terms.  

Again, this is where your real estate agent can answer questions you may have around what is standard in the industry (you see why I said selecting the right agent is critical for someone doing this for the first time).

Back to the topic at hand. 

When looking at prospects, you need to conduct a thorough evaluation of whether a given condo is going to make a good investment. 

Analyze Cash Flow

The first thing you need to analyze is whether the condo will cash flow.  Cash flow is rent minus expenses.  So you will need a very good idea of what the expected rent will be.  Fortunately, condos have a unique advantage over other property types when it comes to this. 

You can use a variety of sources to determine expected rent, including rent-o-meter, Zillow, and of course, the MLS (which is a special database that only real estate agents have access to). My article discusses each of these methods in more detail, as well as my secret tip on getting very accurate rental estimates. 

Your estimated expenses should be pretty easy to calculate.  They are going to include your mortgage, property tax, HOA fees, and condo insurance premiums.  There may be other recurring expenses like utilities if your tenant is not going to be covering those. 

Once you have determined whether the property will cash flow, the hardest and most important part of the analysis is over. 

Analyze Vacancy Risk, the Appreciation Curve and Ease of Sale

After determining whether a condo will cash flow, there are a couple of other things you may want to examine.

Vacancy Risk

Vacancies can be the single biggest risk to your profits.  So you should evaluate whether there is strong tenant demand for your prospect and how quickly vacancies have been filled for similar units in the community.  

You can ask your real estate agent to pull rental comps for similar condos that have rented in same community and find out what the days on market (“DOM”) were for those rentals and whether there were significant drops in price.

If the DOM was short and there were no drops in price, then you might have pretty good rental demand.  If the DOM is long and there were frequent and drastic drops in rents, then you should beware. 

Appreciation Potential

You may also want to look at how the condo has appreciated over time and whether it will be easy to sell when the time comes.

Zillow can be a great resource (again) for getting a sense of how much your condo may appreciate.  When you pull up a given property, Zillow includes a graph showing how Zestimates have gone up or down for that property over time. 

You can also get past sales info for that property.  This will give you concrete numbers on what the property sold for in the past. You can compare that to what it is worth today and get a sense of how the property has appreciated over time.

Zillow also shows “similar homes” that have recently sold. Check out their price history as well to get a better sense of appreciation across a number of similar properties in the area.

Finally, you can also ask your real estate agent to do the same things with “sales comps” for your condo in his MLS database (which may be more accurate and complete).

Ease of Sale

If you are worried about whether you will have a hard time selling the condo in the future, ask your real estate agent to pull MLS sales comps (these show historical sales prices for similar condos in the same community). Look at the DOM for those comps.

As with rental comps, the longer the DOM and the more price reductions you see on a listing, the more difficulty that seller probably had in selling it.

All of these issues and how to figure them out are discussed in detail in my general article on condo investing.

You will also need to address at a later point some of the risks specific to buying a condo.  These include determining whether the condo association rules permit rentals, whether the association is well managed and is financially stable, whether the reserves are sufficient so that special assessments are unlikely, etc.  

Most of this happens after you receive the condo association documents (which happens after a contract is in place). These risks and considerations are discussed in detail in the same article

Step 5: Make the Offer (Stay Cool and Only Buy a Good Deal)

After you have found a condo that fits your criteria, you will want to make an offer.  Your agent will guide you through that process.  There is typically a negotiation on price and other terms, which can be nerve-wracking your first time around.             

Even if you love the condo, don’t get carried away and pay too much for it.  This is an investment and you need to adopt a clinical approach when thinking about it.  

Walk away if it's not a fair deal or if you won't meet your cash flow and other requirements. 

Step 6: Navigate Post-Contract Process and Closing (Getting the Keys!)

Once your offer is accepted and you enter into a sales contract, the clock really starts ticking.  There are inspections to do, HOA documents to review (a really important step), and you have to navigate the mortgage process.  

Luckily most of these things are going to be managed by your agent (and with respect to the mortgage, your loan officer).  You just need to take care of the myriad requests that are going to come your way. 

In addition, the settlement company that is going to handle your closing may also ask you for documents and information to prepare for your closing.

At closing, you will be asked to sign a huge stack of documents (and of course hand over a check!).  But at the end of it all, you will get a set of keys that will hopefully unlock a profitable future for you!

Conclusion

I hope you have found this guide to getting started in condo investing helpful.  As you can see, these initials steps require patience, discipline, and effort.  But if you commit to it, you can wind up with a superior investment that will set you on the path toward financial freedom.

If you prefer a less hands on approach to investing in real estate, you may want to look into real estate crowdfunding, which is an option that you can pursue with a lot less work and money.  

Crowdfunding platforms can be a maintenance-free option and some consider them to be a safer investment than investing in an individual rental property.  

DiversyFund is one example. They offer a hassle-free way to invest in a diversified basket of real estate investments with an initial investment of as low as $500.

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