Risk Disclosure

An investment in Real Estate involves various risks. While Purchasers should make their own evaluation of the risks inherent in the investment, they should give special consideration to the following matters.

Financial Forecast

Leverage

The Investment will depend upon debt to obtain enough capital to purchase the Real Estate. The use of debt is called “leverage.” While the use of leverage may enhance returns on the Investment, it will also increase the risk of loss, including the risks that available funds will be insufficient to meet required payments and that existing indebtedness will not be able to be refinanced or that the terms of that refinancing will not be as favorable as the terms of existing indebtedness. To the extent that the revenue from the Real Estate does not meet required debt service payments or the value of the Real Estate is less than a lender’s requirement, the Purchaser risks the loss of some or all of its Investment and its assets.

Operating History

The Real Estate has not been constructed or operated. No assurance can be given that the Investment will achieve the returns sought by the Purchaser.

Conflicts of Interest

The interests of Seller and its affiliates, including the builder and the property manager made available to Purchaser by Seller may from time to time be inconsistent with the interests of the Purchaser. The nature of these conflicts of interest may vary. There may be circumstances in which they could direct construction or management operations in a manner which would benefit their own interests rather than the interests of the Purchasers. There is no assurance that certain conflicts will not arise or that the resolution of any such conflicts will be made in a manner favorable to the Purchaser.

Speculative Nature of Investment

The Investment is speculative in nature and the possibility of partial or total loss of capital exists. Purchasers should not subscribe to or invest in the Investment unless they can readily bear the consequences of such loss.

Lack of Separate Representation

The Assignor and its affiliates represented by Klehr Harrison Harvey Branzburg LLP and are not represented by separate counsel. Furthermore, it is anticipated that the Assignor and its affiliates will continue to use Klehr Harrison Harvey Branzburg LLP and that they will not be represented by separate counsel in the future.

Competition with Partnership

It is the intention of affiliates of Assignor, individually or together, to continue in other real estate ventures which are likely to involve the acquisition of single family residential property for lease or sale. Such activities could compete with the operations of the Purchaser, but no Purchaser has right to participate in them.

Real Estate Investments

The Investment is subject to the risks generally incidental to ownership and operation of income-producing real estate. These include the following: the illiquidity of investments; the possibility that cash generated from operations will not be sufficient to meet fixed obligations; the presence of undetected physical and other defects; changes in economic conditions affecting real estate ownership directly or the demand for real estate; the need for unanticipated expenditures in connection with environmental matters; unavailability of certain types of insurance; increase in insurance costs; changes in tax rates and other operating expenses; adverse changes in laws, governmental rules and fiscal policies; terrorism; acts of God, including earthquakes and fire (which may result in uninsured losses); environmental and waste hazards; and other factors which are beyond Purchaser’s control.

Casualty Losses; Uninsurable Losses

Some losses (e.g., terrorism, criminal acts, fraud, or punitive damages) may be either uninsurable or not economically insurable. Should an uninsured loss occur, Purchaser could lose its investment in a property as well as its anticipated income from the Real Estate.

Environmental Risks

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Those laws often impose that liability without regard to whether the owner or operator knew of, or was responsible for, the release of those hazardous substances. The costs of removal or remediation may equal or exceed the value of the property, and the presence of those substances, or the failure to properly remediate those substances, when released, may adversely affect the owner’s ability to sell that real estate or to borrow using that real estate as collateral. An owner or operator of a facility may also be required to comply with various laws, ordinances and regulations regarding the handling, production, storage, use, discharge or disposal of regulated materials. No assurance can be given, however, that either a Phase I assessment or subsequent investigation will reveal all potential environmental liabilities.

Tax Risks Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform each taxpayer that any tax discussion contained in this Disclosure Booklet and Agreement was neither written nor intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax-related penalties under the Internal Revenue Code of 1986, as amended (the “Code”). The tax discussion contained in this Disclosure Booklet and Agreement was written to support the promotion or marketing of the transactions or matters addressed by this Disclosure Booklet and Agreement. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Passive Loss Rules

Pursuant to the Code and the regulations promulgated thereunder, the deductibility of a taxpayer’s losses from so-called “passive activities” is limited. Passive activities are defined as trade or business activities where neither a taxpayer nor the taxpayer’s spouse materially participates in the operation of the activity on a regular, continuous and substantial basis. Under the general rule, individuals who sustain losses from passive activities cannot offset such losses against active business income, income from personal services, such as salaries, or portfolio income, such as dividends and interest. Losses from passive activities can only be used to offset income from passive activities. To the extent that such losses cannot be deducted during the year in which they were incurred, such excess can be carried over to future years to offset income from passive activities and/or upon a taxable sale or disposition of the property or the partnership interests with respect to which the loss was sustained.

Risk of Audit; Disallowance Deductions

Taxable Income or Tax Liability in Excess of Cash Distributions, If Any

The amount of gain realized by a Purchaser on the sale or other disposition (including gifts) by the Purchaser of its interest in the Real Estate could substantially exceed the amount of cash, if any, an Purchaser obtains from the sale or other disposition of its Real Estate. It is also possible that the resulting taxes due could substantially exceed the cash, if any, received by the Purchaser and, in such a case, the payment of taxes would constitute an out-of-pocket expenditure to the Purchaser. For tax purposes, “disposition” includes virtually every kind of transfer, voluntary or involuntary, such as a sale, exchange, gift, abandonment, foreclosure, or deed in lieu of foreclosure. Involuntary dispositions, such as mortgage foreclosures, pose the greatest risk in this area simply because they are not within the control of the Purchaser.