The costs you as a landlord can expect when letting property can include the following

Insurance premiums

Premiums for buildings insurance vary by area, type and size of property but allow for between 2 and 3% of the rent. For furnished property allow between another 1 and 4% of the rent depending on the level of furnishing.

Replacing fixtures and fitings

Allow for 10% of the rent each year to replace worn out fixtures, fittings and furnishings. Also, be prepared to re-decorate every few years if furnished.

Maintenance

Things break down and need to be maintained over time. You will need to allow a percentage of the rent to cover this. The type, age and condition of the property will obviously have an effect on repairs and maintenance of the property, so this should be taken in to consideration when choosing your property to purchase.

Levies and Rates

If the property is sectional title you will have to pay levy charges and the standard rates / taxes applicable on all property.

Allow for empty periods

Do not assume the property will always be occupied with a rent paying tenant. Budget for a month each year when the property is empty.

Letting agency fee

Fees vary but a good letting agent could get you a higher rent than if you find a tenant privately - remember that they have more market expertise and a greater selection of tenants for you to choose from which will more than make up for their charges.

Bond or Mortgage

Of course, your biggest cost is likely to be your bond or home loan or mortgage.

Many banks will only lend up to 70% of the property value, so you will need to put in some money yourself - which of course has a cost too!

Once you have deducted all these costs from the rent, you end up with your net expected rental income.

If you divide this into the value of the property, including all the costs

associated with buying it, you have the true net rental yield.

Once you do the maths, you may find that the net rental yield figure is less than the cost of your mortgage, leaving you with a shortfall.

However, if you have bought well, you should expect the rental income to creep up over time plus you should see capital growth too.

After about 5 years your rental income should cover all your costs and start to pay off the outstanding debt - this is called 'other peoples money' to pay off your debt leaving you ultimately with a paid for asset that will accumulate in real capital value far ahead of inflation rates.