The Dunning-Kruger Effect in Real Estate

The Dunning-Kruger effect is something that comes up a lot, especially when you’re heavily invested in real estate. It’s a psychological phenomenon where people with low ability in a particular area overestimate their expertise. I’ve been thinking about this a lot on my recent hikes, especially as I’ve been taking on more challenging trails. The deeper I get into hiking and climbing, the more I realize how much there is to learn—and the more I see parallels with real estate.

I’ll give you an example of how this plays out. When you first start climbing and hiking, you might be with a group of people who are just as new as you are. In that group, you might even be the most experienced one, and others look to you for guidance. In that bubble, your confidence grows. You’re the one leading the way, making decisions, and feeling like you have a handle on everything. But that’s a false sense of security. The moment you’re with a group that has more experience, you realize you have a lot more to learn about the mountain, about yourself, and how to climb successfully. Your previous “expertise” is quickly put into perspective.

The same thing happens in real estate. When you start out, you might have some success with a couple of properties and think you have a handle on everything, especially if you’re doing it by yourself. You can find yourself overconfident in your capabilities because you don’t yet have the framework to understand all the potential risks and complexities involved. You might not know what you don’t know about market cycles, property management, or legal intricacies, and that lack of awareness is a form of risk in itself.

But then, you make a conscious decision to seek out a group of people to learn from—seasoned investors, mentors, or a mastermind group. That’s when the Dunning-Kruger bubble pops. You realize how much you don’t know and how vast the landscape of real estate truly is. The questions they’re asking and the strategies they’re discussing make you realize that you’ll be learning for a long time. It’s a humbling but necessary experience. This is where you transition from being an overconfident novice to a more grounded and thoughtful professional.

As you develop and progress, and you start to acquire more properties and buildings, you begin to integrate with other, even more sophisticated groups. You might meet people who are managing dozens or even hundreds of properties, or who are operating on a scale you couldn’t have imagined. And that’s when you realize that no matter how far you’ve come, there’s always another level to reach. It’s an humbling moment for a lot of people, and it’s something to be aware of.

Keep that in mind. The Dunning-Kruger effect is real, both on the trail and in the real estate market. The more you learn and the higher you climb, the more you understand the vastness of what you don’t know. The key is to embrace that realization and to always remain a student of the game, no matter how experienced you become.