Value Added: Getting Rich By Living Modestly

Here's Tom Heath's latest column on greater Washington's entrepreneur set:


One of the books I frequently pull off the shelf is a biography of Charlie Munger, the co-chairman of Berkshire Hathaway and Warren Buffett's sidekick. (Berskhire is part-owner of The Washington Post Co. ).

"Damn Right," as the book is named, has a couple of nuggets that are inspiring. One is how hard it is to create your first $1 million in assets. Then there's my favorite: live beneath your means, so you have some money to invest and actually make that first million. It made him a billionaire.

The same strategy made Betty S. Gardner and her husband, Joe, rich as well. They may be the least well-known real estate moguls in the Washington region.

"We live very modestly," said Betty Gardner, who celebrated her 78th birthday last week. "We don't publicize our wealth. We are charitable people and we give anonymously to most things."

Betty and Joe, and their partner Norris E. Mitchell, own close to 1,000 apartments and townhouses throughout the Mid-Atlantic under Gardner Homes Realtors. The partners own a ton of Virginia Commerce Bank stock, a very profitable Comfort Inn on Glebe Road in Arlington County and about 600 acres in Fauquier County that they plan to develop when the time is right. They own half of a 10,000-square-foot warehouse in New Carrollton, Md., and are holding 800 acres near a golf course project near Roanoke.

The Gardners personally own a 500-acre farm in Orange County, Va., a 10-bedroom house on the Outer Banks and a condo in Myrtle Beach. But they still live in the same McLean house they bought for $88,000 four decades ago.

I estimate the Gardners are worth somewhere between $50 and $100 million. They are no Ted Lerner, who took $450 million of his real estate fortune and bought the Washington Nationals. But the Gardners have grown from a single rental house in McLean into a sprawling real estate empire -- all by living on less than what they earn and investing the savings in real estate.

It's a wise policy.


Betty S. Gardner. Photo by Frank Murphy.

It started almost by accident. Betty took a real estate course with a friend back in the 1960s, when Joe was working as an engineer for McDonnell Douglas, the aviation giant that is now part of Boeing, for $13,500 a year. With three children already (they ended up having four) and little experience in real estate, two friends approached Betty and asked her to join their startup company in Northern Virginia.

"It just looked like real estate was something I could do," said Betty. "I was a homemaker and proud of it and almost ashamed I was getting into the business world. I was very interested in money. I kept getting pulled into it. I got pregnant and tried to drop out. After a few things dropped in my lap, these two women came to me and I said what can I do. I had a four-month-old baby. I had very little experience, but I thought what did I have to lose?"

Betty and her friends each invested $500 to start their business at a little office in McLean. Times were good. Betty would drop the three-year-old off at the nursery and head to the office, where she would sell real estate for three hours before picking the child up before noon.

Washington was expanding from a sleepy town into a major urban area. Northern Virginia was ready expand with it. Betty soon sold a house to one of her husband's friends, Norris Mitchell, who was interested in real estate investments.

After her two business partners left the area, Betty Gardner eventually took over the firm, renamed it after herself. Even when she wasn't selling houses herself, Gardner has salespeople that were paying her a chunk of their commission. The sale of a $40,000 house would earn her several hundred dollars.

The children went to public school and Gardner's real estate earnings went toward the purchase of investment properties with Mitchell as a 50-50 partner.

"Everything we pulled in, we turned into real estate," she said. "It didn't take that much to save up because homes weren't that expensive."

The Gardners and Mitchell started gradually, buying and selling a few detached homes in McLean. In the early 1970s, they bought an eight-unit apartment complex for around $75,000. They paid as large a down-payment as they could afford and the seller loaned them the rest.

"We worked out payments where we assumed the [seller's] loan," said Betty Gardner. "We always looked for assumptions so we didn't have to go to banks for the money."

In other words, they would make a big downpayment in cash and assume the loan held by the seller. The property would serve as the collateral in case of default.

They bought a second eight-unit building next door. By 1974, they owned 40 units in five buildings. They paid down the debt as fast as they could and used the profits to buy more. They bought a 100-unit complex in Alexandria from Bob Arledge, a local real estate investor.

One of their biggest obstacles, which turned into a big home run, came with Lee Gardens, a 1,000 unit complex in Arlington. They bought the complex for about $18,000 a unit, but soon discovered that the apartments were in much worse condition than they had thought. They resold the building in less than two years for about $28,000 a unit, earning millions for the company.

"We were really overwhelmed with the condition and knew it had to be rehabbed," said Gardner. "We were smart to get from under it."

The Harbor Terrace near National Airport followed, as did the Comfort Inn, expansion into Roanoke and townhouses in Lynchburg. Though they assiduously network and keep on the lookout for new deals, Gardner said much of the real estate in the Washington area is still pricey, making it difficult but not impossible to make a fortune from it.

Gardner said if smart investors look closely enough and are patient, they can find bargains just like the Gardners did. It may take more expertise, but the current downturn presents opportunities for smart real estate buyers. "People have dropped their prices, making it more realistic for buyers," she said.

They have also ventured outside of real estate. They were one of the early investors in Virginia Commerce Bank back in 1987, and the Gardners now own around half a million shares. Mitchell is a big shareholder and on the board of directors at VCB.

"We have worked hard and are thrifty people," said Gardner, who drives a 2002 Chrysler Concord. Her husband drives a 10-year-old Ford Navigator. "We never had anything given to us. We have done what we have said."

The Gardners have had their share of tragedy. One son died in an accident. One daughter is paralyzed from another accident. A grandson is paralyzed from the waist down. Gardner said they bought the house on the Outer Banks earlier this year because it was handicapped accessible and had room for all of their sprawling family.

"The thing that gives us the most joy is our children and our grandchildren," said the native of Moss Point, Miss. "We spoil them."

Betty still runs her Gardner Homes Realtors in McLean, and MG has expanded from simply owning apartments to managing apartment complexes for others.

"We have never bought to flip," she said. "We try to buy at market value, and real estate has historically gone up. So if you hold it, it's going to grow for you. That's what happened here in Washington, and we grew with it."

By Dan Beyers  |  September 2, 2008; 7:00 PM ET  | Category:  Value Added
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Comments

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Wow, how refreshing to see a hugely successful woman/wife/mother/grandmother!

Posted by: Anonymous | September 2, 2008 10:34 PM

"The Four Filters Invention of Warren Buffett and Charlie Munger" is my new book.
http://www.amazon.com/dp/0615241298
"Four Filters Invention" is really about optimal investment "decision framing."

"The Four Filters Invention of Warren Buffett and Charlie Munger" examines each of the basic steps they perform in "framing and making" an investment decision. This book is a focused look into this amazing invention within "Behavioral Finance" that has been underappreciated by both the business and academic communities.

The genius of Buffett and Munger's four filters process was to "capture all
the important stakeholders" in a "multi-variable" equation or formula.
Imagine...Products, Enduring Customers, Managers, and Margin-of-Safety...
all in one mixed "qual + quant" formula. After you read this book, you will
understand how these two men enhanced the ideas of Benjamin Graham and innovated an elegant four step process.

Had this formula or process been invented by two academics, it would be worthy of a Nobel Prize in Economics and Behavioral Finance.


Posted by: Bud Labitan | September 3, 2008 9:18 AM

thanks bud. will take a look.

Posted by: tom heath | September 3, 2008 12:17 PM

"But they still live in the same McLean house they bought for $88,000 four decades ago." - probably worth $2mm+ today! An $88k home in the 60s was not a cheap house.

Posted by: david | September 3, 2008 12:41 PM

What an inspiration Mrs. Gardner is for all of us young women trying to make it! I love these stories of achieving the American dream while maintaining balance and remaining focused on the family. Thanks for the story.

Posted by: Anonymous | September 3, 2008 12:54 PM

Thanks for such an inspiring story! It's so nice to hear a success story like this that came from lots of hard work and saving.

Posted by: Anonymous | September 3, 2008 2:01 PM

a grandmother - WOW

Posted by: ALD | September 3, 2008 2:18 PM

Such great inspiration to start saving and investing, even if it's only a little at a time.

Posted by: anonymous | September 3, 2008 2:26 PM

Nice gem to find Mr. Heath.

To the Gardners, thank you for sharing such a great story!

Best of luck going forward.

Posted by: Luis | September 3, 2008 4:07 PM

As a small business owner building a company I have adopted a plan to live on the least amount I can, and take all the rest and continue to build the asset equity of my business.
http://www.rexxsales.com

Posted by: Jacob | September 3, 2008 5:15 PM

Mr and Mrs Gardner and Family are by far one of the most respected Hotel owners in the DC area. Mrs Gardner treats me like I am one of her family and I appreciate her more and more with every conversation we have. To Know her is to Love her.

Thanks Mrs. G for all you do.
Jim Adams

Posted by: Jim Adams | September 3, 2008 7:22 PM

Now that's inspiration! In a town full of politians and wannabes, what a refreshing story about a real woman who made a difference for herself, her family and her community.

Posted by: anonymous | September 3, 2008 7:39 PM

An outstanding profile! Mrs. Gardner sounds like a remarkable woman – succeeding in business, completely committed to her family, and active in her community. It’s amazing what the combination of business acumen, hard work, and planning can accomplish. Her story is both impressive and inspirational - what a great role model!

Posted by: MC | September 3, 2008 7:49 PM

THIS IS A GOOD ARTICLE ON THE SUCCESSFUL GROWTH OF A START-UP COMPANY WITH LIMITED CAPITAL.

SOMETIMES WE HAVE TO TIGHTEN OUR BELTS TO PRESERVE LIMITED FUNDS AND WORKING CAPITAL.

THE GARDNERS "LIVED BENEATH THEIR MEANS" TO GET STARTED UNDERCAPITALIZED. THIS IS GOOD ADVISE, ESPECIALLY WITH BORROWED MONEY.

Posted by: RS | September 4, 2008 11:09 AM

Don't know much about qual or quant formulae let alone qual + quant, but the Gardners get my vote for creating and perfecting their own four step process - 1) being in the right spot at the right time as the Washington market exploded 2) nerve and entrepreneurial spirit 3) hard work and determination and 4) not letting the tragedies and mishaps of life that hit everyone in some fashion or another break their spirit. Good for them!

P.S. Next time you talk to Charlie Munger or Warren Buffett, please ask them what is the tipping point when it becomes a given that you are living beneath your means on your march to your first billion? One hundred million? Half a billion?

Posted by: Cooper | September 7, 2008 8:20 PM

Before you sing the praises of Gardner Realty
talk to a neighbor who lives near one of their many properties. A single family home
in McLean has never beeen updated in more than 20+ years. It needs new guttering, roof, garage door and a well deserved paint
job. Because it sits on a corner and is
one of the first houses you see when you
come into the neighborhood it brings the
value of other houses down. I don't see
anything admirable about this type of
practice. Taking the money and not
keeping up the property would be called
a slum lord in D.C. In McLean it's
being called "living modestly" and banking
millions at the expense of those of us
who live near their investments.



Posted by: A disgusted neighbor | September 9, 2008 11:00 AM

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