The Dunning-Kruger Effect in Real Estate Investing

[Brian J Allen]

I haven’t come across many articles connecting the Dunning-Kruger effect to real estate, so I thought I’d share my thoughts.

In short, the Dunning-Kruger effect explains how, when you know very little about a subject, you tend to think you know a lot. As you learn more, you realize how much you don’t know. Eventually, with time and experience, your knowledge and confidence begin to align more realistically.

This concept is incredibly relevant to real estate investing.

I encounter this often: an investor seeks advice but quickly tells me how much they already know. In their mind, they just need some local knowledge and access to off-market properties. They’re convinced they can pick the right house and make a fortune. In the last five years, I’ve had close to 10 investor clients who either became real estate agents or had their spouses do so—because they were certain they already knew enough to handle it on their own.

From here, I’ve seen things go in two directions.

One path is overconfidence: they rush out, buy properties, and quickly get themselves into trouble. Their perception of their skills far outweighs their actual knowledge, leading to costly mistakes.

The other path is paralysis: they begin to realize how much they don’t know and become stuck, afraid to make a move. This "analysis paralysis" can prevent them from acting on opportunities out of fear of making the wrong decision.

I’ve experienced this journey myself. Five years ago, I thought I had all the answers. But around three years ago, I realized just how much I still had to learn. I started listening more to other agents and experienced investors, which has helped me grow tremendously. Today, I’m in a place where I can share my knowledge and experience with clients, while still valuing their input and perspectives.

The Dunning-Kruger effect reminds us that learning is a continuous process. In real estate, as in anything else, the more we grow, the more we realize there’s always more to know.