Ed McKnight: Breaking down investment ads that seem too good to be true

The ads we see on social media promise us a great many things, but how many of them are as good as they seem? 

Ed McKnight was recently served an ad on Facebook promising rental investment with great returns that set off a few alarms. 

He joined Jack Tame to break down the ad and explain the concerning signs to look for if you spot an investment ad that seems too good to be true. 

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack team podcast
from News Talks that'd be ed.

Speaker 2 (00:13):
McKnight is our personal finance expert. He's with Opie's Partners
and he's with us this morning.

Speaker 3 (00:17):
Kilder, great to be here, Jack.

Speaker 2 (00:19):
You know, I have this kind of theory of life
that says you should never believe anything on Facebook. If
it's a photo of your mum, you can't believe it.
You know, it's either your friends and family who are
trying to make their lives look way better than they
actually are, or it's a scam these days. Am I wrong?

Speaker 3 (00:36):
Well, I think you're probably right. Maybe I'll have to
be careful about my own mother. But what I wanted
to talk about today was I've seen some really interesting
ads on Facebook promising or promoting specific investment returns, especially
around property investment, and one caught my eye recently claiming
that this developer had a property that you could buy

(00:57):
that would deliver a fifteen point four percent annual rental return.
And the reason that caught my eye is that most
properties deliver a rental return around four to seven percent,
so claiming that this property would be over fifteen percent
would be like double them what's normal. Now, it can
take a lot of time to dig into the detail

(01:18):
and look at the numbers and decipher that claim. So
I've gone ahead and done it for everybody today, and
what I've found is a couple of things that are
pretty concerning.

Speaker 2 (01:27):
Jack okay, So run us through it.

Speaker 3 (01:29):
Well. The first thing is when we calculate a rental return,
typically you'd say how much is it going to rent
for per week? What's it? What's it worth? Here they
were using it as an airbnb, and when properties are airbnb's,
they tend to get a lot more money in, but
they have a lot more cost. Now that on its
own would not be what I'd consider dodgy. But here's

(01:50):
what our side found when they were running the numbers.
We all know that an airbnb is not going to
have a guest in there one hundred percent of the time,
but that's how they round them. Ran the numbers. You've
got to have a guess one hundred percent of the
time when around seventy percent is normal. And in fact
I called up a local airbnb property manager. They reckon

(02:13):
at best it could ramp up to eighty five percent.
So you're probably not going to be able to get
that exact return, but that's not all. They then ignored
all of the costs. So when you go ahead and
run the numbers on an Airbnb, you're going to have
way high cost because you've got to have linen in there.
We've got set up costs. We're going to pay fifteen

(02:33):
percent of our revenue in some cases to Airbnb. Then
you might have another fifteen percent for a property manager.
And there are so many more costs. And once you
factor all of those in, I reckon this property is
more around about a six percent net yield than the
fifteen percent grossield they were claiming.

Speaker 2 (02:51):
Yeah, and that's if everything goes well, right, Like, there
are all manner of risks when you're, you know, looking
at property investments, and certainly when you're looking at short
term rental investments like Airbnb.

Speaker 3 (03:04):
But here's the worst thing, Jack, I could probably I
could probably overlook some of these things. As you know,
developers aren't financial experts, so I don't really like it
when they are promoting specific returns because the truth of
the matter is they often get their number crunching wrong
because they're good at building houses rather than running property math.
But the worst thing that I can't get over is

(03:27):
that they were promoting these properties as an airbnb in Queenstown,
and deep down in the atty bitty fine print, it
said that these properties had a consent application for them
to be an airbnb three hundred and sixty five days
of the year, but the consent hadn't been granted and
this specific developer would give no warranty that it actually

(03:51):
would get the consent, so there was no guarantee you
could actually run it as an airbnb. But that's what
they were promoting. And if that consent doesn't go through,
well that's tough luck. Doesn't matter that you saw that
type of rental return promoted on a Facebook ad. You
didn't get consent, So tough luck there. And I just
think that leaft a really bad taste in my mouth, right,

(04:12):
I mean, what are you view of that?

Speaker 2 (04:14):
Yeah, I mean yeah, of course, But I mean again,
I'm extremely skeptical of anything like this, anything that's promising
what to me sounds like an unrealistic return. I'm automatically
skeptical of when it's something promoting an unrealistic return on Facebook,
I'm triply skeptical of it. But I mean that is
just so cheeky, isn't it to have applied for consent

(04:35):
but not Actually you know, not having been granted consent
means that, you know, potentially there are people who are
going to sign up to this thinking they could have
an Airbnb that's available all year round, and they might not.

Speaker 3 (04:47):
And look, ultimately, this isn't about airbnb. Is it good?
Or is it not right? No? No, no, I think
what I wanted to get across today is well, how
do you decode the spin in a Facebook ad and
whether it's for a developer promoting an airbnb or any
other sort of investment, and just be a bit careful
about speci specific for tunes that are claimed from anyone

(05:08):
on Facebook.

Speaker 2 (05:09):
Yeah, very prudent advice. Thank you so much, appreciate your
time in McKnight Fromby's Partners with Us this Morning.

Speaker 1 (05:15):
For more from Saturday Morning with Jack Tame, listen live
to News Talks ed B from nine am Saturday, or
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