Investing in a rental property is one of the best financial moves you can make. And if you choose wisely and know the pitfalls, it’s a great alternative investment that’ll help diversify your portfolio. But before heading out and getting your hands dirty, make sure you know the right questions to ask.

• Ensuring a Positive Cash Flow

  Do a cost-benefit analysis from an opportunity-cost perspective, and figure out what your return will be for every $1 you invest. Today, you get almost no returns for holding your money in a savings account, so failing to let that dollar work for you is a lost opportunity. (Even a 3% return can be huge compared to placing your cash in the bank.)

  Just as you would invest capital in raw materials or a piece of equipment for a business, you should evaluate real estate based on how much revenue it can generate for you.

• When you look at a deal, ask yourself these 4 questions:

  1. Is there Positive cash flow on day one. Yes or No?
  2. Can I afford to sustain the property when vacant?
  3. How much will home improvement cost? Will it add value to the property?
  4. What is the demand for this type of property and its location?

  When you're eyeing rental properties, understand the area's leasing market and rent prices. Examine reports or property condition to figure out your potential annual maintenance costs.

  Also, take a look at where you currently are on the real estate cycle. Are properties cheap compared to historical norms or getting more expensive?

  Placing the task of maintaining and managing property on your shoulders can help cut expenses. However, if a complicated system, like an electricity panel needs repair, it might be better to have a licensed professional handle it. Or else, you might wind up having to cover unexpected costs caused by faulty repairs.

  When you invest time and money in home improvement (decorating, re-designing, and renovating the property), and care about your tenants as individuals, more tenants get attracted to your property and tend to stay longer.

  On the other hand, when you invest less time and money in property maintenance, you can move somebody in fast on an inexpensive property, and collect rent during months that are otherwise spent on renovations. There will be, however, more ongoing maintenance expenses that you'll have to deal with.

• Personal Vs. Professional Property Management

  You'll need to determine if you'll be hiring a property management company or do it all on your own. With professional services on the case, they'll be able to handle most of your property's concerns (expect to pay anywhere from 8-12% per month).

  Remember, real estate investing is a learning process. It's wise to start small as you learn with less risk. You need to put in hard work, do the research, read, and get smart to make the best choice in real estate investments!