How do you factor in costs?

Yes, all costs to get your net return, gross means nothing.

here is a pretty comprehensive rundown of what income and expense factors I look at for a property purchase.

Don't forget to allow for income and benefits of the following when calculating the total value to you from this investment.

Gross Rental Yield,
Depreciation Benefits,
Negative Gearing Benefits,
Capital Growth
Other income generated from this investment (ie: a car space you may lease separately)
development potential   (ie: a reno or subdivision)
Creative Options (ie: Wraps, Rent to buy or options)
Benefits of trust (ie: potential to spread rental income and capital gains tax liabilities to trust members on lower tax brackets than you.)

And remember to have realistic expense budgets for:

Purchasing Costs( building inspector fees, stamp duty, mortgage stamp duty, conveyancing, mortgage loan application fees, other, titles fees, LMI, pro-rata reimbursement of rates to the vendor, sneaky mortgage costs like their legal fees they trick you into paying that are never mentioned etc) I usually use 5.5%of purchase price as a rough guide and add 1.5% for LMI if taken

Property Management (including annual leasing fees and there other sneaky charges). I'd assume 1 tenant turnover per year.
    so subtract 6 -8% for the agents management costs AND a further 2 – 6 weeks rent for their annual leasing fee

Tenancy Vacancies (can range from 4 weeks per year to 3 months in some areas(ie: uni areas and holiday rental areas)) I'd assume 4 weeks minimum in most areas. This also factors in the odd bad tenant who trashes the place

Maintenance (older houses cost a lot more to maintain) I'd say $500 – 1500 p.a. for average house

Accumulated Capital Gains Tax Liability (remember some depreciated items will actually increase this liability) …so everytime your house goes up in value, you lose money because the government will eventually want that back as CGT. I Factor in about 20% of any capital gain expected to be made and set that aside to one day give to the tax man. 

Mortgage Interest Rates (+ annual bank fees and other fees they will throw in like break costs and variation fees) Remember the rates do change!!!

initial Renovations/repair costs (which are capital and can't usually be a tax deduction)

Land tAX – WHICH GETS EXPONENTIALLY WORSE AS YOUR PORTFOLIO EXCEEDS A CERTAIN LAND VALUE (remember to get trusts as the portfolio gets bigger for this reason)

Any income tax liabilities for positive geared property.

aNNUAL aCCOUNTING cOSTS- can range from a few hundred to a few thousand per property

depreciation schedule costs

Trust Running Costs (if using one) this can add easily a few grand per year to your costs.
Annual ASIC costs (if you have a trust with corporate trustee)

Council Rates

Water Rates

Insurances

And try to figure in a value for CPI, knowing that the value of a dollar falls with each year that passes.

SANF – there will be some of your time and some degree of stress as with any investment.

Potential Risks and this cost – can you wear the worst case scenarios- Property prices fall, Interest Rates, go up, etc.

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As you can see there are many things to consider