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The Magnolia Story (with Bonus Content)

Page 14

by Chip Gaines


  All of that was on my mind as I took the kids over to that ugly shotgun house one day to start sketching out some decorating and remodeling ideas. I knew that I didn’t have a backyard to work with and less square footage than the Castle Heights house, but I was determined to be creative and to try.

  The front door of that house was on one end, by the driveway and garage, and the house just shot back from there in this long, straight, narrow rectangle, with a hallway that ran the length of the house, all the way to the back door by the garage and driveway. Well, no sooner did I open the door than the kids took off down that hall. They started giggling and squealing, and then one of them slipped and kind of fell.

  I was worried for a second that somebody had hurt themselves and the whole day would get off on the wrong foot. But that slip and fall made them notice that the floor was slippery to slide on, so all of a sudden the shoes came off and they were running back down this hallway in their socks and sliding straight into the kitchen. You’d have thought we just told them they were going to Disney World, they were so excited. I hadn’t done a thing to that house yet, and already my kids were having a better time in it than I’d ever seen them have in my big, beautiful house in Castle Heights.

  I went into the house that day thinking I’d try to envision some paint colors and pick who would be in which bedroom. Instead, a lightbulb went on that started to change absolutely everything for me: “My kids love it in here. They can be kids. I’m going to design around that.”

  Now I wasn’t just thinking about making sure the kids had a space they could love. I realized I needed to create a whole house that they could love and I could love and Chip could love. The whole place needed to be practical and functional for them so they could have fun and be themselves in their own home—and we could too.

  There were two living rooms in that house, and right then and there I decided to make one whole living room just for the kids. I had this idea to fill bookcases with all of their books, and that got me thinking about what would make Chip happy and what would make me happy.

  I’d have my kitchen, sure. That was my domain. I was becoming a better cook and really starting to enjoy it. But what would make that even better would be to have a garden so we could have fresh tomatoes and cucumbers and carrots to use. And how much fun would it be to work in the garden with the kids and teach them where their food comes from?

  I bolted down the hallway and slid in my socks to the back door with the kids all following right behind me. Then we all went outside and looked. I realized there was just enough land on the side of the house to fence in and turn into a garden. There was even room for a pergola and a little outdoor eating area.

  That night I told Chip all about my plans, both inside and out, and he got excited about the outside fenced-in area too. He said, “Can we get some chickens? I’ve always wanted chickens, like my grandfather had on his ranch.”

  My response: “Why not?”

  That day in that house with our kids was another turning point for me as a designer and a mom. I came to a brand-new conclusion: “If all I’m doing is creating beautiful spaces, I’m failing. But if I’m creating beautiful spaces where families are thriving, then I’m really doing something.” Doing that became my new calling.

  The house really started to become a space where creativity flowed, and that set me down a new path in all of my design work. It’s not just about pretty anymore. It’s about practical. It’s about children feeling that they can be at home. From then on, everything I’d touch from a design standpoint would have that element of balance to it—where it wasn’t just aesthetically pleasing, but it also fit into my (or my client’s) stage of life.

  In seemingly no time at all, we had vegetables growing and a couple of chickens laying eggs. The boys loved their room with a windmill in it, and the girls loved their fifty-dollar “princess-style” chandelier from Lowe’s that dangled from their ceiling.

  The kids’ living room featured a couple of big chalkboards and a beat-up old farm table where they could get creative to their little hearts’ contents. I put some of those big old letters up on the walls of that room, spelling out “PLAY” on one wall and using everyone’s first initial in an appropriate spot. Then I redid the kitchen with a clean black countertop and white subway tiles.

  I filled that home with the beautiful sorts of things I loved, from an old wooden bench to bulky antique black candle sconces and some old gates on the walls and a cool-looking old antique scale that didn’t serve any purpose other than to look old and cool.

  I swear, the moment we moved into that house designed around us, I saw my family come alive in ways I’d never quite felt before. The kids were happy, and that made mama happy. Chip seemed all sorts of content to go out and feed his chickens in the morning. And I sometimes found it hard to believe that we’d had such a breakthrough as a family—and I’d had such a breakthrough as a designer and mom—in what was once an ugly, shotgun flip home.

  It turned out that Chip’s reasons for moving into that home were good ones. Change was good. It was inspirational. But that’s not what I’m talking about. It’s the other reasons he had—the notion that maybe the economy was slowing down a bit and maybe we ought to reduce our financial footprint—that proved to be a godsend. Because just as we started enjoying our new life in that Carriage Square home, our biggest investment ever took an unexpected turn that would rip the rug right out from under our feet.

  TWELVE

  GETTING TO THE BOTTOM

  I picked up the phone and within two words I realized this was the type of call no businessman wants to receive.

  It was my banker.

  “Hi, Chip,” he said. Even those first two words sounded shaky. “Hey, man, I’ve got some bad news,” he continued. “But I don’t want you to worry. We’ll get through this.”

  Could there be a more chilling way to open a conversation? I couldn’t imagine what we were about to “get through,” and I was completely unprepared to hear the news he was about to tell me.

  Months before this, Chip and I had basically gone and put all of our eggs into one big basket—and no, I’m not talking about the eggs we were collecting from Chip’s chickens.

  Over the past four years, we had gone from being these mom-and-pop remodelers and house flippers doing one, maybe two properties at a time to tackling five, eight, ten properties at a time. The Boys had grown into a big crew, and we had become masters of our trade. The economies of scale had finally tipped in our favor. The fact that we were buying building materials in bulk meant each individual project was a little more profitable than the last.

  Right from the start, I’d been rolling the profits from one flip into the next. We wouldn’t even see the money before it was gone, invested in the next one and the next. And every single time I did that, I made money. Anyone I borrowed from, whether it was my dad, a good friend, or an investor, made their money back plus interest every time. It seemed as though we had the Midas touch.

  I’d learned so much by that point that I’d decided it was time to do what the big boys do. When my dad and I had sold the eleven acres to that big development firm, the guy I shook hands with wore a $50,000 Rolex. I didn’t covet that watch, but I did envy his success. Now I was sure I, too, could handle that kind of big endeavor.

  Doing a few houses at a time spread out all over town meant that a lot of money was being spent on separate crews and trucks and hauling things all over the place. The way to make money was to put a large development together with multiple homes all at once, all in one place.

  So that’s what I set my sights on. We basically stopped buying new flip homes and instead poured all of our money into developing this piece of land we’d been sitting on. The plan was to create a neighborhood called Magnolia Villas—thirty-eight comfortable, affordable little first-rate homes all designed by Jo. We’d even gone and opened up a real-estate arm of our company so that all the sales and sales commissions on this whole deal would come
our way.

  It was a good plan. It really was. But it takes a lot of money to put a plan like that together, and that meant putting all of our eggs into the proverbial basket and taking out a massive line of credit from the bank.

  I’m not going to talk about the exact numbers here, but it was a huge line of credit that we’d budgeted every dollar for permits, roads, water and sewer lines, electric hookups, estimated building materials, and contracts with additional crews—all so we could get those houses built quickly and sell them in time to start paying back that line of credit from the profits. We had to do it quickly because, basically, every day that line of credit remained open, it represented a large amount of interest.

  I trusted Chip completely with this. His instincts had been right every time we’d jumped into something new. Plus, I was excited about the homes themselves. With this newfound sense of purpose in my mission when it came to design, I drew up plans for the most adorable, functional, livable spaces I’d ever imagined. These were smaller homes, but I had plenty of firsthand experience with that. I knew how to design a small home that I could love, one that would be filled with open spaces and hideaway spaces and the kinds of textures and surfaces and little touches that would make a person feel welcome before he or she even opened the attractive solid-wood front door.

  The problem is, there weren’t going to be any doors or anything else. We got the plans all approved. We had the road crews come in to lay out and pave the streets. We had the sidewalks and gutters in place and all the proper drainage we needed in order to start building the actual houses.

  And that’s when our banker called with the bad news.

  The tidal wave of economic despair that had swept through the rest of the country, that had already crippled housing developers in far-off places like Miami and Las Vegas, had finally reached Waco, Texas. The federal government had come in and told the banks they had no choice but to pull back on any pending loans and lines of credits. And not just pull back a little, but pull back by half.

  “We don’t have a choice about this,” my banker told me.

  The line of credit we needed to get the project completed had been suddenly cut in half. And if we couldn’t complete the project, we would have no way to repay that loan.

  And here’s the thing: We had already received nearly half of that line of credit. We’d already used it to make nonrefundable down payments on everything we needed to get started. We had materials on site. There was no way out.

  I’m sitting there going, “Jo, we’re into this thing for a ton of money, and I’ve got most of the invoices sitting on my desk that are due to be paid—some in thirty days, some in forty-five days. What are we gonna do?”

  Everyone we’d worked with up until that moment had been paid on time. So they had no idea we were standing on the edge of this cliff. No one had any idea that there was anything wrong. If we called them now, they’d all be hit just as hard and shockingly as we’d been hit by the bank’s news.

  My banker insisted he would help us get through it, and he did. We came up with a plan. We had managed to save some money that we had tied up in a CD, so we cashed that in. Our banker friend even waived the penalty so we wouldn’t lose the little bit of interest we’d earned. Jo had some cash she’d been saving up on the side, too, just as she had way back when the shop was open. The banker was able to open us up a couple of smaller lines of credit so we could pay some bills while we tried to pull the rest together.

  All of this took a lot of finagling and creative thinking. Those big developers in Miami or Las Vegas would have just wiped their hands of it, walked away, declared bankruptcy, and said “adios.” In fact, many of them did. But Jo and I couldn’t do that. We wouldn’t do that. There was no way we were going to let anybody we’d made promises to not get paid.

  After all of the scrambling, after everything was said and done, after we literally poured everything we had into trying to fix this thing, we were still $100,000 short of the finish line.

  Chip and I prayed together. A lot. We were doing well in our new house. The kids were happy, and we did our best to hide our problems from them, even as our stomachs clenched at the breakfast table and we felt like breaking every time the mailman brought another stack of bills that we had absolutely no money left to pay.

  It wasn’t just a matter of paying construction bills now. We were literally tapped out. In a few weeks’ time we would have nothing left to pay the electric bill and the mortgage on our home, where we lived with our children.

  We were still working on some remodeling projects. In fact, I was doing the best work of my life, and we brought in some money through that work. But it wasn’t nearly enough. So at that point, all of our praying led us to do something that felt completely radical to us.

  I reached out to two friends of mine—and I’m using that term very loosely. These were people I didn’t know well, people I’d worked with here and there. And they were fairly comfortable financially. Not rich—not by any means. But they were the type of people who might have some money in the bank and might be interested in earning a better return than the 1 percent the bank was giving them at the time.

  I took these two guys to lunch, and as sick as I was on the inside and as much of a panic as I was in, I tried to keep the conversation all business. “So look: I’m in a bit of a pickle. It’s not bad news, like I’m in this huge bind, but we do have this development called Magnolia Villas under way, and we would be interested in your financing the completion of it. The bank has essentially capped us at an amount that was much lower than what we had initially agreed on.”

  I explained what the status of the development was and what we had already done to raise the money. “I’ve got all the work on the ground, but I still need about $100,000 to get us across the finish line.”

  I asked them for $50,000 each and laid out some terms on how quickly we believed we’d be able to pay them back with interest. It was a very fair deal, and even though I’d kept it focused on the business aspects, I basically felt like I’d spilled my guts to those guys.

  One of them was completely silent, just didn’t say a word. The other guy said, “I don’t know, man. It sounds too risky for me.” He asked a lot of questions and seemed nervous about the deal in general.

  I’d never had anybody react that way to a deal of mine, ever. It felt like a kick in the gut. In their defense, however, this is not what those guys did for a living. They were not angel investors or financial gurus. They were just good guys I thought might want to get in on this with us.

  Long story short, they both walked away without much commitment and seemed generally uninterested. They were much better friends with each other than they were with me, and I just hoped that maybe the one who hadn’t said a word was on my side and would convince his friend not to be so skeptical.

  I walked away feeling like Russell Crowe’s character in that boxer movie Cinderella Man. I wondered if I was going to have to be that formerly proud man who had once been at the top of my profession and now had to wander around to all of my old cronies with my hat in my hand, begging for a dollar so I could buy my kids some milk.

  We decided we’d better sit down and go over everything again. We went through the old invoices that were still unpaid and the new ones that had come in since we got the news, and we realized that we now had $100,000 in invoices sitting there. So even if those two men decided to make the investment (which at this point seemed very unlikely), all of that money was already spent, and we’d be back to falling behind again the very next month unless we could presell some of the houses or encounter some other windfall.

  A couple of very long days went by, and I finally got a call from the silent guy I’d taken to lunch. He said, “Hey, man, I really want to see the development. My wife and I want to meet you out there and walk the property and just get a better sense of what exactly you’re talking about.”

  So we met them over at the site, and these two walked around just as calm as
they could be. “This is beautiful,” they said. “This is awesome,” they said.

  “Wow,” I said. “I was hoping you would think that. So what are you guys doing? Why did you want to come walk the site?”

  “I know that meeting was a bit rough the other day,” he said. “I just want you to know that I’ve never done this kind of thing before. But when you were talking, you were really speaking my language. I admire how hard you’ve fought to keep the project alive and make sure everyone gets paid, and I was actually eager to help you out. But I wasn’t sure if it was just my heart talking, you know? So I went back and told my wife about it, and we prayed about this. And, well, we’ve decided that we want to give you the $100,000.”

  I reminded him that I only felt comfortable with the $50K investment to spread out the risk.

  “I know, but we prayed about it, and we just feel this is the right thing to do. You’re doing a good thing here. We need this kind of development in Waco, and we have no doubt you’re going to sell all of these houses and it will make a big difference to a lot of people.

  “And if you don’t? Well, as I said, we’ve prayed a lot about this, so we don’t want you to worry if you don’t ever pay us back. We’ve already imagined that, so if this doesn’t work out like you hoped it would, don’t worry about it. We’re already over it. We don’t want this to be awkward as far as our relationship is concerned.”

  My knees almost gave out. It took everything in me not to break down right then and there. This wasn’t like a best friend who would bend over backward to bail you out of trouble. They were just acquaintances at the time. So for them to say something like that came as a complete shock. They had that $100,000 check with them, and they handed it to us right then and there.

 

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