Behavioral Finance for Real Estate Pros: Master Your Money Mindset

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In this episode of the Real Estate Pros podcast, Ted McLyman discusses the importance of understanding money behavior in real estate. He emphasizes that how we behave with money is more crucial than our knowledge of it. Ted shares insights from his extensive background in finance and behavioral science, explaining how emotions and social influences impact financial decisions. He provides strategies for effective money management and highlights the significance of building strong relationships in the real estate industry. The conversation concludes with resources for further learning and personal development in financial behavior.

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Ted McLyman (00:00)
What they should do is take a note, go to Lowe’s, buy an apple tree, and plant it in the front yard. Because that’s the emotional tick. You’ve got to understand, particularly in consequential purchases, it is 95 % at least 95 % emotion. In real estate, financial assets, securities, there’s a two-step process.

Our primitive brain, our feeling brain, loves looking at houses, loves anticipating what we’re going to do with it. All of that, you know, it’s an amazing experience. But then you go to closure and it’s different. That’s all right brain stuff. That’s all analytical. That’s our thinking brain. And we don’t like being over there.

Kristen (02:12)
Welcome back to the Real Estate Pros podcast. I’m Kristen and I’m here with Ted McLyman who is a serial entrepreneur. He is the co-founder and vice president of DreamSmart Behavioral Solutions. They give a behavioral approach to real estate. So we’re going to talk a lot about that and, you know, behavior around money. He’s also the author of Confessions of a Reformed Financial Advisor, all about better choices through behavior. Again, so we have a lot of really interesting stuff to talk about. Thanks for being here, Ted.

Ted McLyman (02:36)
It is a pleasure to be here.

Kristen (02:38)
Well, tell everyone about your background. You have a very interesting background. You’ve done a lot and now, you know, kind of what led you into Dream Smart.

Ted McLyman (02:47)
Yeah, absolutely. I’m on my third and a half career right now and my wife keeps track on a big binder and wonders when I’m going to do something really important. came out of college, upstate New York, got tired of snowing, dark. I took a commission to the Marine Corps primarily to see the world and get some money for graduate school. They had the foresight to send me to Hawaii where I was introduced to sunglasses, sunscreen, and obscenely high real estate prices.

From there, I thought I was going to go to the Marine Corps. They offered me graduate school, ended up teaching economics at the Naval Academy. And there I was introduced to the concept of really smart people doing really dumb things with money. The students were brilliant. They aced it in the classroom, but they were failing in life. And the Secretary of Navy came back and asked us to start work with it. And I was amazed at all the solutions were reactive, not proactive. Ended up as a secretary of the Navy for financial management, worked with a political class on

money issues I won’t even go there retired became a financial advisor and I did the traditional thing I did what they told me I was really good at it got very disenchanted because I realized very quickly that my job was to help manage behavior not money and nobody wanted to do that so I started my own firm Apex behavioral financial group and we took a behavioral approach clients loved it was very successful

sold that, met Jeff Morris, a kindred spirit on LinkedIn and we started talking like we’re doing now and we said, you know, we got something here.

I work on money behavior. He works on natural behavior and that’s what we’re doing at DreamSpark. We’re really focusing on college kids, particularly division one athletes that are just doing obscene things with money right now because they don’t know any better. And the system is not teaching them or holding their hand. And I had clients that were former professional athletes that when they got injured or something happened to their life, it just blew up because their income source dropped. They got into asset classes they didn’t understand, ⁓ particularly real estate.

just because you’re a great quarterback doesn’t mean you can run an apartment building. And I’ll just leave it at that. And what I’m doing now is I’m really talking about the book. I wrote it in January, published in August, because I got bored. But I wanted to get the message out to an entire generation, younger people that don’t like to talk about this, but they need to.

And I don’t talk about money, I talk about money behavior because how we behave with money is more important than what we know.

Kristen (05:10)
Absolutely, and I think this really ties into the real estate industry, the investor community, people kind of going out on their own, maybe going from their W-2 jobs, coming into something different. What are some of the fundamental money behavioral methods that you teach?

Ted McLyman (05:20)
Yeah.

Well, the first thing as a real estate investor

turn off reality TV. Okay. I’ve read a paper that one of the reasons everybody went to a agreeable gray and stainless steel kitchen just because do over, flip or show. And it had an incredible impact. what I would, the first thing I would say about real estate, real estate investing in the whole thing, it’s an asset class like anything else. And it has to be looked at the same way.

Kristen (06:18)
Yeah.

Yeah. Right.

Ted McLyman (06:40)
But because real estate by its nature is high cost, there’s a long sales cycle, there’s a lot going on, you are invested emotionally, you’re invested financially, and we never talk about the behavioral piece. I can’t tell you the number of people that I’ve worked with as a financial advisor that wanted to come in and drain an account or move things around to get into something I knew very well they had no business doing.

However, I had other clients that were prepared to go fix it. Okay. So I had some contractors and contractors and plumbers and electricians. So when Dr. So-and-so took the house down to the studs and didn’t know how to put it back together, I had the team for him.

Kristen (07:22)
You have to

do that. That’s amazing. Yeah. So then you helped people kind of have a better relationship with money. Is that kind of what you focus on?

Ted McLyman (07:30)
Yeah,

it’s here’s the here’s the premise and it’s in the book. There are three things that conspire against us when we try to choose and spend number one is our biology. Humans are wired to stay alive, chase opportunities and pass on our genes. Everything else is secondary and we’ve been doing this for eons. So we’ve got a brain that is wired to do that. When when you’re in a situation in milliseconds, you’re.

Feeling, I call it your feeling brain, your primitive brain takes over and is making emotional decisions. And that’s who we are as humans. Money’s only been around for about three or 4,000 years. We were on the barter system forever. And let me give you a quick story. If we were still on the barter system and you wanted to go get a cup of coffee, go out back and grab one of your prized chickens and take it in and try to make change, I mean, think about it.

That’s tough and it’s really messy and the chicken hates it. So we have to understand that modern money and fintech and our economy is nothing more than a way to facilitate exchange. But our human behavior is the underlying factor in all of it. The formula that I use for success with money is time, money, rate of return over behavior. Nobody’s talking about the behavior piece.

Kristen (08:43)
Absolutely, I mean I haven’t really heard anyone dive deep into it so that’s interesting that it’s kind of wired with our biology. Are there maybe like social elements that we also learn along the way?

Ted McLyman (08:53)
Yeah, yeah, it even gets better since there’s three things so biology is number one and we’re always gonna be human and do human things with money and if you’re on the retail side of real estate You know that you put people in the back of your car you drop them someplace you they tell you this is exactly what they wanted and you’ll get in and whoa It’s a whole different experience. Okay. The next thing you need to understand is

Our values, beliefs, and culture are incredible drivers. Values is nothing more than answering the question, what’s important about money to me? And it’s usually much deeper than just a new car, new house. It’s what makes you who you are. It’s the guiding principle.

Most of your behavior with money and your relationship with money is well established by mid-adolescence, middle school, and your parents have a significant impact, but it’s your peer group. So the peer group you hung around with in middle school, how you dressed, what you thought was important, is still with you. And then after that, it’s culture.

Culture is probably the most significant driver of anything I think of, and it’s amplified by technology. And that’s the third element, tech. We have the capability right now to be exposed to asset classes, tools, techniques, and famous people all over the place that are doing amazing things that five years ago we wouldn’t even know they existed. The problem is this little window to the world, our brain has trouble differentiating.

what’s going on, the context. And if you take like a home improvement show and in 30 minutes they take a house, they buy the house, demo the house, build the house, have a little bit of drama, and then have an opening in 30 minutes. And you go, my gosh, I can do that. Well, maybe.

And I’ll just leave it at that. So that’s a huge thing. So those are the things that conspire against all of us every time we spend. What I tell people is, if you’ve ever been to the grocery store to buy milk and bread, and you go in, go around the entire store, spend a small fortune, get home and found out you didn’t get the milk and bread, you’re human. That’s not bad for milk and bread. But if you do that with a major piece of real estate or something like that, it’s devastating.

Kristen (10:52)
Yeah.

Absolutely, and I know that you also, know, beyond just the investing end of it, the sales end of it is a big part of, you know, behavior and, you know, how sales are emotional.

Ted McLyman (11:43)
Yeah, ⁓

We’re all in the same industry. A financial advisor does the same thing as a realtor. We just got different stuff. But the process is pretty much the same. I was originally trained on script. I mean, there’s nothing more artificial and regimented than learning a script. I was always taught to sell the shiny, the feature. We never got really deep. And what I found after I got into it,

that that was, didn’t work. And particularly real estate, when I started working with realtors and I go in and the focus was always on the start with the legal, don’t go to jail, don’t do anything stupid, don’t get the agency in trouble. But I found it fascinating that

I talked to a young agent, maybe had their first showing, and they’re all prepped up, they’ve got their notes, and they’re doing features and ben… features, features, features, features. And they’re walking into the house, and the client, potential client looks over and says, gosh, I wish there was an apple tree here, because the house reminds me of my grandmother’s, and I wish we had an apple tree, that would make a difference. And the agent is still babbling about the new sump pump.

What they should do is take a note, go to Lowe’s, buy an apple tree, and plant it in the front yard. Because that’s the emotional tick. You’ve got to understand, particularly in consequential purchases, it is 95 % at least 95 % emotion. In real estate, financial assets, securities, there’s a two-step process.

Our primitive brain, our feeling brain, loves looking at houses, loves anticipating what we’re going to do with it. All of that, you know, it’s an amazing experience. But then you go to closure and it’s different. That’s all right brain stuff. That’s all analytical. That’s our thinking brain. And we don’t like being over there.

So I find it’s amazing at the closing, you’ve got a lawyer there, you’ve got a team of people, they’ve got a

and lawyers and depending on the size of the transaction, can take a long time. And your brain has to be able to get out from this feeling brain, dopamine driven, I’m having a great time. anticipate what this is going to be. It’s going to be a bed and breakfast. We’re going to do this. We’re going to put the pool in. And the lawyer goes, we’ve got five inches of paper here. And all we’re really basically saying is, it’s your fault, not our fault. Sign here, sign here, initial here. That is a huge.

conflict and our brains have trouble wrestling with that. Some people are good more on the

Sales side, some are more good on the technical side. And where it comes together, you need to get your head around it. If you’ve got partners, you’re all going to look at this differently. I found that happened a lot. And the behavioral piece, in my opinion, is the touch mark where you start. I tell people what I talk about is the piece that’s missing from traditional sales if the sale is high value, consequential.

emotionally driven, and it’s going to take some time in their legal consequences. You need to focus on what I’m talking about because the rest of it’s almost on autopilot.

Kristen (14:46)
Absolutely, and what are some of the strategies you use to help people through these challenges?

Ted McLyman (14:53)
Well, the book, that’s one of the reasons I wrote the new book. It’s 120 pages. It’s easy. They actually got pictures. It’s got exercises in there to help you do a couple of things. One, determine your values. What’s important about Monday to you? There’s an exercise there. Then what is your, that your belief sets, the markers of your culture that explain why you think you need a pickle blood cord all of a sudden. I don’t know. Then we talk about

how you naturally behave with money. That’s money temperament. Now, I have proprietary instruments that I use when I do coaching and training, but I have a couple of quick exercises in there to help you determine how you are with money. And I’ll give you a quick one. Go to your calendar, go to your bank statement. Where you spend your time, where you spend your money is an indicator of your present values and your money temperament. We never talk about that. We always talk about goals.

Kristen (15:46)
Yeah.

Ted McLyman (16:27)
But how are you wired? From there, I want you to look at, this is also in the book, how do you process information? I call it your money knowledge. Yes, you’ve got to have technical knowledge, but how do you process information? When it’s important, if you’re a visual learner, make sure you get pictures and graphs and colors. If you’re auditory, make sure it’s explained in a way that you can understand it. If you’re tactical, man, go walk through the property. Go shake the hand of the contractor. Go meet the maintenance guy. It doesn’t matter, but it always…

In the financial industry, all the paperwork is oriented to one class of people and that’s digital thinkers. And on top of that, you generally never even most of the paperwork. You’re kind of there on faith. So you have to remember that it’s your program, your money, your outcome.

Kristen (17:03)
you

Ted McLyman (17:13)
If it annoys that lawyer that is sitting there all day long just doing closures, and you say, no, I don’t want you to read it to me. Show me. Give me a picture. It’s your money. It’s your program. It’s going to be your piece of property. You’re going to own it for the next 10, 20 years. You might as well get it right.

Kristen (17:30)
Absolutely, and I feel like this industry, it’s challenging because you’re not just dealing with your own behavior, but you’re usually dealing with other people’s behavior too. Your clients, your contractors, whatever that might be. Can you talk about how to interact with people in an effective way?

Ted McLyman (17:40)
Absolutely.

yeah,

yeah. Well, you bring up a really good point culturally. Money in the United States, we make the assumption, and this is the way I was trained, that we are rational decision-takers, that given enough facts and enough spreadsheets, I will take the right decision because it’s just common sense. The challenge you have, subconsciously, we assume in a millisecond that everybody’s wired the same way as us.

We look through the world through our eyes. We process information our way and in very complex situations it’s very easy to go into the default that said everybody’s just like me and if I had a dollar for every

⁓ meeting I sat in with an advisor or a real estate professional that I wanted to jump over the table because the answer was somebody had a really good question it was an emotional question and they said hey let me rerun the numbers it’ll be okay well not everybody relates to that so the trick you have to do is you’ve got to your head on a swivel vet the professionals you’re working with okay if you’ve got a team of subs that you have on

speed dial if you remember what speed dial was. Know who they are, get to know them, get to know how they’re wired because if something goes wrong on a site and it will you have to know their natural temperament and their money temperament and when you’re taking shortcuts it’s going to come out eventually and somebody’s going to pay for them either professionally, emotionally or financially.

What I have learned, you figure this stuff up upfront. Take the time to build your team, build relationships. Don’t focus all on the technical. I would rather have somebody that is very stable emotionally that I can work with. And we have a great relationship that knows 80 to 90 % of the technical stuff. Cause I can find that engineer that they only let out in public, you know, to fix this one thing, bring that person in, pay them and get rid of them.

But if you’ve got a sub that’s on the site and the next property owner is walking in or the potential buyer and because of their behavior, their attitude, their relationship with money, and they have the potential of destroying the entire deal.

That’s reality.

Kristen (20:03)
Yeah, absolutely. I mean, this is really great insight to, you know, something that people don’t really consider or think about, but it’s so important within this industry for so many different reasons. ⁓ Tell people where to find you, how to get involved with DreamSmart and where to your book as well.

Ted McLyman (20:17)
⁓

Yeah, the book is on Amazon. If you go to tedmclyman.com that’s my website, and it’ll explain what I’m doing here. ⁓ And I’ll be honest, I’ve been doing this little enterprise is now 60 days old. So I built the website, it looks good. I’ve got the Mesa, but I’ve been doing this all my life. I’ve just done this new endeavor that I want to work with people.

who want to make it work and don’t want to go through the two to three years rites of passage that I had to go through before I figured it out. It’s avoidable. The common wisdom in most commerce is based on tech tools and techniques that I don’t think are terribly appropriate in today’s modern economy. We do things differently. We have different tools and the tools allow you to leverage your behavior and your expertise in ways you never could before.

So take that advantage, you’ve got to learn how to do it. So the book is available. It’s on Amazon under Ted McLyman. It’s in digital and paperback form. I will come out and talk to a tree with you if you want me to. I mean, give me a call. On my site, there’s my booking calendar. If you want to talk to me about any of this, book a 30 second call. Because I’m at a mission. I’ve been around so long and I’ve seen the

bad side of money where it’s devastating. Devastating because somebody assumed or somebody had a different relationship, particularly with intergenerational transfers. know, grandpa’s there in the suit, junior comes in a sport coat, and his grandson comes in, you know, in shorts once a week to pick up a check. And grandpa’s going, my entire real estate empire is going to go away unless I get this fixed. That’s a behavioral problem.

And you got to get in there quick and you got to get it fixed. The traditional way of doing it is not good. One of the things I do is I’ll sit down with a family and we’ll go through the whole behavioral profile. You’ll see the differences, the overlap and all of that. And it’s often just simple things. Are you a natural spender or a natural ⁓ saver? I don’t care, but you need to know. And then the solution, which I have in the book, it’s called the money behavior system. It’s values, temperament.

thinking and then a strategy that fits you, instead of trying to bludgeon you into a behavioral set that doesn’t fit you because that’s the way we’ve always done it, why not find out who you are and how you’re wired and then build a strategy around that. You’re going to be happier, you’re going to be more successful, everybody’s going to have a win-win and you’re going to learn some significant things about yourself and the people you’re working with.

Kristen (22:47)
Well, this has been, there’s been so many amazing takeaways from this and I imagine everyone’s gonna want to hear more about this. So thank you so much for being here.

Ted McLyman (22:57)
I appreciate it. This is fun.

Kristen (23:00)
Yes, and thank you everybody for listening. Definitely go to tedmclyman.com. He’s got a lot of knowledge to share and it’ll definitely impact your business in a very positive way. So we will see you back next time. Bye.

Ted McLyman (23:11)
Perfect.

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Behavioral Finance for Real Estate Pros: Master Your Money Mindset

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