To refine his study of the wealthy a bit, Lars finds a sub-group within his 32, of the 11 with net worth in excess of $20 million. This still falls short of the league of the Carnegies and Rockefellers, but in Lars's town it's a bunch. Eight of the 11 are in real estate, an even higher ratio than in the larger group. The eight are evenly divided between commercial and residential success, and the four residential are equally split between single-family and multi-family. So maybe real estate is the thing, but there are different ways to do it.
How does leverage enter in? There are six of the 11 who made it in real estate without inheritance (more on the heirship thing in a minute). Lars eyes these six. All of them have borrowed a lot of money. It looks like leverage is critical. This might be a bit self-evident to some, but Lars wants to numbers-test a little. He figures: let's go back to our example of Cervantes and Panza. Panza has $1 million in cash and stocks and Cervantes the same value of equity in real estate.
Cervantes' $1 million consists of a $2 million property with a 5% mortgage for $1 million. Let's also assume each has an investment return of 7.5% per year (a little optimistic during these hard times, but not unreasonable for good investors over decades). Panza will gain $75,000 a year. Cervantes will have $150,000 of gain less $50,000 of interest expense, for an advance of $100,000.