'It's Not a Fun Time for Anybody'

From the Dallas Morning News:

Question: A couple of years ago, I purchased an investment property in Sacramento, Calif. For a while, all went well. But in 2006 I was without a tenant for the first half of the year. Making the mortgage payments ate through all of my cash reserves.

Currently I do have tenants, but the income does not quite cover the expenses. And the home's value is static at best. Should a tenant move or not pay their rent, or if I lost my job, I would be in financial trouble almost instantly.

I don't know what to do. I can't sell the property for what I owe on it, and I don't have the money to bring to closing if I lose money. I would love to just walk away. I know that would destroy my credit rating, but I am desperate enough to do that, because it is likely to be destroyed as soon as there is any problem.

Is it possible to sign ownership over to the lenders? Would that free me from the problem, or would I still be responsible for whatever shortage results from their sale of the property? Are there any other options I should know about or consider?

I am getting desperate. Any advice or information you can give would be appreciated.

D.T., Cedar Hill

Answer: You're in a very tough position, akin to the people I described as "condo slaves" during the worst of the late-1980s Texas real estate bust. Back then, condo owners couldn't refinance their high-interest mortgages because they were upside down. And they couldn't sell their properties except at a loss. Worse, speculative buyers would buy comparable condos at foreclosure and then rent them at lower rates because their costs were lower.

From the Redding Record Searchlight:

State Real Estate Commissioner Jeff Davi did his best to allay concerns about the housing market as he addressed a packed house of Shasta County agents Wednesday in Redding. It may not be the best of times, he said, but it certainly isn't the worst.
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"Real estate is cyclical. You can't deny that. You just have to be more aggressive and do things differently. It's not a fun time for anybody."
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Davi...said statewide there is about 10 months' worth of unsold inventory. That's far below 1981 levels, another down time, when there was two years of unsold inventory on the books in California. "So there have been much worse times," Davi said.

The Wall Street Journal as an update on the developer turned almond grower:

Greg Hostetler is a real-estate developer who builds subdivisions in California's Central Valley. But the past few years, he's gone nuts. To be precise, Mr. Hostetler has been building a sideline in almonds, spending $60 million to buy and plant 4,500 acres of trees since 2000. This year, he plans to shell out at least another $5 million to plant an additional 1,000 acres. "The almond market is looking a lot better than the housing market right now," he says.

Mr. Hostetler isn't the only newcomer jumping into California's almond game, where orchards now stretch down the Central Valley from Red Bluff in the north to Bakersfield in the south. In the past few years, doctors, lawyers, pension-fund managers and pro football Hall-of-Famers, among others, have all snapped up farmland in the state to plant almonds as world-wide demand for the nut has grown by 11% between 2001 and 2006. And despite some concerns on the horizon, many of the newer growers remain optimistic.

"Everyone knows that almonds are a great investment," says Monterey, Calif., restaurateur Dominic Mercurio, who has teamed with football commentator John Madden to purchase nearly 400 acres of almond orchards, spending more than $3 million since they bought their first 25 acres in the late 1990s.
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But many of the people jumping into almonds are doing so even as prices for the nut have been sliding...In a classic agricultural cycle, high crop prices resulted in a rush to plant trees, leading to a market glut of nuts...All of this has roused the ire of some longtime almond farmers, who say the newcomers are driving up land values and driving down nut prices.
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Mr. Hostetler, the Central Valley real-estate developer who is now planting more almond orchards, says his $60 million investment in the nut so far is "a little better than break even," but he'll know more after this year's harvest ends next month.

Mr. Hostetler, who still spends three-quarters of his time in the property business, says he isn't worried about the huge quantity of almonds slated to fall from the trees this season, or the thousands of acres being planted with new trees this year. When he drives his pickup truck out between the dusty rows of trees, he says he sees nothing but bounty and profit on the horizon.