<PAGE>   1





                                                                    EXHIBIT 10.0

                               ADVISORY AGREEMENT
                                     BETWEEN
                     TRANSCONTINENTAL REALTY INVESTORS, INC.
                                       AND
                         BASIC CAPITAL MANAGEMENT, INC.

         THIS AGREEMENT dated as of October 15, 1998, between Transcontinental
Realty Investors, Inc., a Nevada corporation (the "Company") and Basic Capital
Management, Inc., a Nevada corporation (the "Advisor")

                              W I T N E S S E T H:

         WHEREAS:

         1. The Company owns a complex, diversified portfolio of real estate,
mortgages and other assets, including many non-performing or troubled assets.

         2. The Company is an active real estate investment trust with funds
available for investment primarily in the acquisition of income-producing real
estate and to a lesser extent in short and medium term mortgages.

         3. The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination, structuring and
evaluation of real estate and mortgage investments.




                                       35
<PAGE>   2





         NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:

         1. DUTIES OF THE ADVISOR. Subject to the supervision of the Board of
Directors, the Advisor will be responsible for the day-to-day operations of the
Company and, subject to Section 17 hereof, shall provide such services and
activities relating to the assets, operations and business plan of the Company
as may be appropriate, including:

            (a) preparing and submitting an annual budget and business plan for
approval by the Board of the Company (the "Business Plan");

            (b) using its best efforts to present to the Company a continuing
and suitable investment program consistent with the investment policies and
objectives of the Company as set forth in the Business Plan;

            (c) using its best efforts to present to the Company investment
opportunities consistent with the Business Plan and such investment program as
the Directors may adopt from time to time;

            (d) furnishing or obtaining and supervising the performance of the
ministerial functions in connection with the administration of the day-to-day
operations of the Company,





                                       36
<PAGE>   3





including the investment of reserve funds and surplus cash in
short-term money market investments;

            (e) serving as the Company's investment and financial advisor and
providing research, economic, and statistical data in connection with the
Company's investments and investment and financial policies;

            (f) on behalf of the Company, investigating, selecting and
conducting relations with borrowers, lenders, mortgagors, brokers, investors,
builders, developers and others; provided however, that the Advisor shall not
retain on the Company's behalf any consultants or third party professionals,
other than legal counsel, without prior Board approval;

            (g) consulting with the Directors and furnishing the Directors with
advice and recommendations with respect to the making, acquiring (by purchase,
investment, exchange, or otherwise), holding, and disposition (through sale,
exchange, or otherwise) of investments consistent with the Business Plan of the
Company;

            (h) obtaining for the Directors such services as may be required in
acquiring and disposing of investments, disbursing and collecting the funds of
the Company, paying the debts and fulfilling the obligations of the Company, and
handling,



                                       37
<PAGE>   4



prosecuting, and settling any claims of the Company, including foreclosing and
otherwise enforcing mortgage and other liens securing investments;

            (i) obtaining for and at the expense of the Company such services as
may be required for property management, loan disbursements, and other
activities relating to the investments of the Company, provided, however, the
compensation for such services shall be agreed to by the Company and the service
provider;

            (j) advising the Company in connection with public or private sales
of shares or other securities of the Company, or loans to the Company, but in no
event in such a way that the Advisor could be deemed to be acting as a broker
dealer or underwriter;

            (k) quarterly and at any other time requested by the Directors,
making reports to the Directors regarding the Company's performance to date in
relation to the Company's approved Business Plan and its various components, as
well as the Advisor's performance of the foregoing services;

            (l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Company;




                                       38
<PAGE>   5





            (m) assisting in preparation of reports and other documents
necessary to satisfy the reporting and other requirements of any governmental
bodies or agencies and to maintain effective communications with stockholders of
the Company; and

            (n) doing all things necessary to ensure its ability to render the
services contemplated herein, including providing office space and office
furnishings and personnel necessary for the performance of the foregoing
services as Advisor, all at its own expense, except as otherwise expressly
provided for herein.

         2. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Advisor are not
partners or joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.

         3. RECORDS. At all times, the Advisor shall keep proper books of
account and records of the Company's affairs which shall be accessible for
inspection by the Company at any time during ordinary business hours.

         4. ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall refrain
from any action (including, without limitation, furnishing or rendering services
to tenants of property or managing or




                                       39
<PAGE>   6





operating real property) that would (a) adversely affect the status of the
Company as a real estate investment trust, as defined and limited in Sections
856-860 of the Internal Revenue Code, (b) violate any law, rule, regulation, or
statement of policy of any governmental body or agency having jurisdiction over
the Company or over its securities, (c) cause the Company to be required to
register as an investment company under the Investment Company Act of 1940, or
(d) otherwise not be permitted by the Articles of Incorporation of the Company.

         5. BANK ACCOUNTS. The Advisor may establish and maintain one or more
bank accounts in its own name, and may collect and deposit into any such account
or accounts, and disburse from any such account or accounts, any money on behalf
of the Company, under such terms and conditions as the Directors may approve,
provided that no funds in any such account shall be commingled with funds of the
Advisor; and the Advisor shall from time to time render appropriate accounting
of such collections and payments to the Directors and to the auditors of the
Company.

         6. BOND. The Advisor shall maintain a fidelity bond with a responsible
surety company in such amount as may be required by the Directors from time to
time, covering all directors, officers,




                                       40
<PAGE>   7





employees, and agents of the Advisor handling funds of the Company and any
investment documents or records pertaining to investments of the Company. Such
bond shall inure to the benefit of the Company in respect to losses of any such
property from acts of such directors, officers, employees, and agents through
theft, embezzlement, fraud, negligence, error, or omission or otherwise, the
premium for said bond to be at the expense of the Company.

         7. INFORMATION FURNISHED ADVISOR. The Directors shall have the right to
change the Business Plan at any time, effective upon receipt by the Advisor of
notice of such change. The Company shall furnish the Advisor with a certified
copy of all financial statements, a signed copy of each report prepared by
independent certified public accountants, and such other information with regard
to the Company's affairs as the Advisor may from time to time reasonably
request.

         8. CONSULTATION AND ADVICE. In addition to the services described
above, the Advisor shall consult with the Directors, and shall, at the request
of the Directors or the officers of the Company, furnish advice and
recommendations with respect to any aspect of the business and affairs of the
Company, including any




                                       41
<PAGE>   8





factors that in the Advisor's best judgment should influence the policies of the
Company.

         9. ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th of each
year, the Advisor shall submit to the Directors a written Business Plan for the
current Fiscal Year of the Company. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Company. To the
extent possible, the Business Plan shall set forth the Advisor's recommendations
and the basis therefor with respect to all material investments of the Company.
Upon approval by the Board of Directors, the Advisor shall be authorized to
conduct the business of the Company in accordance with the explicit provisions
of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set forth
in the Business Plan. Any transaction or investment not explicitly provided for
in the approved Business Plan shall require the prior approval of the Board of
Directors unless made pursuant to authority expressly delegated to the Advisor.
Within sixty (60) days of the end of




                                       42
<PAGE>   9





each calendar quarter, the Advisor shall provide the Board of Directors with a
report comparing the Company's actual performance for such quarter against the
Business Plan.

         10. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below:

            (a) "Affiliate" shall mean, as to any Person, any other Person who
owns beneficially, directly, or indirectly, 1% or more of the outstanding
capital stock, shares or equity interests of such Person or of any other Person
which controls, is controlled by, or is under common control with such Person or
is an officer, retired officer, director, employee, partner, or trustee
(excluding noninterested trustees not otherwise affiliated with the entity) of
such Person or of any other Person which controls, is controlled by, or is under
common control with, such Person.

            (b) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified appraiser who is a
member in good standing of the American Institute of Real Estate Appraisers and
is duly licensed to perform such services in accordance with the applicable
state law, or, when pertaining to Mortgage Loans, the value of the underlying
property as determined by the Advisor.




                                       43
<PAGE>   10



            (c) "Book Value" of an asset or assets shall mean the value of such
asset or assets on the books of the Company, before provision for amortization,
depreciation, depletion or valuation reserves and before deducting any
indebtedness or other liability in respect thereof, except that no asset shall
be valued at more than its fair market value as determined by the Directors.

            (d) "Book Value of Invested Assets" shall mean the Book Value of the
Company's total assets (without deduction of any liabilities), but excluding (i)
goodwill and other intangible assets, (ii) cash, and (iii) cash equivalent
investments with terms which mature in one year or less.

            (e) "Business Plan" shall mean the Company's investment policies and
objectives and the capital and operating budget based thereon, approved by the
Board as thereafter modified or amended.

            (f) "Fiscal Year" shall mean any period for which an income tax
return is submitted to the Internal Revenue Service and which is treated by the
Internal Revenue Service as a reporting period.

            (g) "Gross Asset Value" shall mean the total assets of the Company
after deduction of allowance for amortization, depreciation or depletion and
valuation reserves.




                                       44
<PAGE>   11





            (h) "Mortgage Loans" shall mean notes, debentures, bonds, and other
evidences of indebtedness or obligations, whether negotiable or non-negotiable,
and which are secured or collateralized by mortgages, including first,
wraparound, construction and development, and junior mortgages.

            (i) "Net Asset Value" shall mean the Book Value of all the assets of
the Company minus all the liabilities of the Company.

            (j) "Net Income" for any period shall mean the Net Income of the
Company for such period computed in accordance with generally accepted
accounting principles after deduction of the Gross Asset Fee, but before
deduction of the Net Income Fee, as set forth in Sections 11 (a) and 11(b),
respectively, herein, and inclusive of gain or loss of the sale of assets.

            (k) "Net Operating Income" shall mean rental income less property
operations expenses.

            (l) "Operating Expenses" shall mean the aggregate annual expenses
regarded as operating expenses in accordance with generally accepted accounting
principles, as determined by the independent auditors selected by the Directors
and including the Gross Asset Fee payable to the Advisor and the fees and
expenses paid to the Directors who are not employees or Affiliates of the




                                       45
<PAGE>   12





Advisor. The operating expenses shall exclude, however, the following:

            (i) the cost of money borrowed by the Company;

            (ii) income taxes, taxes and assessments on real property and all
other taxes applicable to the Company;

            (iii) expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange listing of the
Company's securities (including legal, auditing, accounting, underwriting,
brokerage, printing, engraving and other fees);

            (iv) fees and expenses paid to independent mortgage servicers,
contractors, consultants, managers, and other agents retained by or on behalf of
the Company;

            (v) expenses directly connected with the purchase, origination,
ownership, and disposition of Real Properties or Mortgage Loans (including the
costs of foreclosure, insurance, legal, protective, brokerage, maintenance,
repair, and property improvement services) other than expenses with respect
thereto of employees of the Advisor, except legal, internal auditing,
foreclosure and transfer agent services performed by employees of the Advisor;




                                       46
<PAGE>   13





            (vi) expenses of maintaining and managing real estate equity
interests and processing and servicing mortgage and other loans;

            (vii) expenses connected with payments of dividends, interest or
distributions by the Company to shareholders;

            (viii) expenses connected with communications to shareholders and
bookkeeping and clerical expenses for maintaining shareholder relations,
including the cost of printing and mailing share certificates, proxy
solicitation materials and reports;

            (ix) transfer agent's registrar's and indenture trustee's fees and
charges; and

            (x) the cost of any accounting, statistical, bookkeeping or computer
equipment necessary for the maintenance of books and records of the Company.

     Additionally, the following expenses of the Advisor shall be excluded:

            (i) employment expenses of the Advisor's personnel (including
Directors, officers, and employees of the Company who are directors, officers,
or employees of the Advisor or its Affiliates), other than the expenses of those
employee services listed at (v) above;




                                       47
<PAGE>   14


                (ii)  rent, telephone, utilities, and office furnishings and 
other office expenses of the Advisor (except those relating to a separate
office, if any, maintained by the Company); and

                (iii) the Advisor's overhead directly related to performance of
its functions under this Agreement.

            (m) "Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, joint stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof.

            (n) "Real Property" shall mean and include land, rights in land,
leasehold interests (including but not limited to interests of a lessor or
lessee therein), and any buildings, structures, improvements, fixtures, and
equipment located on or used in connection with land, leasehold interests, and
rights in land or interests therein.

      All calculations made pursuant to this Agreement shall be based on 
statements (which may be unaudited, except as provided herein) prepared on an
accrual basis consistent with generally accepted accounting principles,
regardless of whether the Company




                                       48
<PAGE>   15





may also prepare statements on a different basis. All other terms shall have the
same meaning as set forth in the Company's Articles of Incorporation and Bylaws.

       11. ADVISORY COMPENSATION.

            (a) Gross Asset Fee. On or before the twenty-eighth day of each
month during the term hereof, the Company shall pay to the Advisor, as
compensation for the basic management and advisory services rendered to the
Company hereunder, a fee at the rate of .0625% per month of the average of the
Gross Asset Value of the Company at the beginning and at the end of the next
preceding calendar month. Without negating the provisions of Sections 18, 19, 22
and 23 hereof, the annual rate of the Gross Asset Fee shall be .75% per annum.

            (b) Net Income Fee. As an incentive for successful investment and
management of the Company's assets, the Advisor will be entitled to receive a
fee equal to 7.5% per annum of the Company's Net Income for each Fiscal Year or
portion thereof for which the Advisor provides services. To the extent the
Company has Net Income in a quarter, the 7.5% Net Income Fee is to be paid
quarterly on or after the third business day following the filing of the report
on Form 10-Q with the Securities and Exchange Commission, except for the payment
for the fourth quarter, ended




                                       49
<PAGE>   16



December 31, which is to be paid on or after the third business day following
the filing of the report on Form 10-K with the Securities and Exchange
Commission. The 7.5% Net Income Fee is to be cumulative within any Fiscal Year,
such that if the Company has a loss in any quarter during the Fiscal Year, each
subsequent quarter's payment during such Fiscal Year shall be adjusted to
maintain the 7.5% per annum rate, with final settlement being made with the
fourth quarter payment and in accordance with audited results for the Fiscal
Year. The 7.5% Net Income Fee is not cumulative from year to year.

            (c) Acquisition Commission. For supervising the acquisition,
purchase or long term lease of Real Property for the Company, the Advisor is to
receive an Acquisition Commission equal to the lesser of (i) up to 1% of the
cost of acquisition, inclusive of commissions, if any, paid to nonaffiliated
brokers; or (ii) the compensation customarily charged in arm's-length
transactions by others rendering similar property acquisition services as an
ongoing public activity in the same geographical location and for comparable
property. The aggregate of each purchase price of each property (including the
Acquisition Commissions and all real estate brokerage fees) may not exceed such
property's Appraised Value at acquisition.




                                       50
<PAGE>   17



            (d) Incentive Sales Compensation. To encourage periodic sales of
appreciated Real Property at optimum value and to reward the Advisor for
improved performance of the Company's Real Property, the Company shall pay the
Advisor, on or before the 45th day after the close of each Fiscal Year, an
incentive fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all Real Property sold by the Company during such Fiscal Year
exceeds the sum of: (i) the cost of each such Real Property as originally
recorded in the Company's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (ii) capital improvements
made to such assets during the period owned by the Company and (iii) all closing
costs (including real estate commissions) incurred in the sale of such Real
Property; provided, however, no incentive fee shall be paid unless (a) such Real
Property sold in such Fiscal Year, in the aggregate, has produced an 8% simple
annual return on the Company's net investment including capital improvements,
calculated over the Company's holding period, before depreciation and inclusive
of operating income and sales consideration and (b) the aggregate Net Operating
Income from all Real Property owned by the Company for all of the prior Fiscal
Year and the current Fiscal Year shall be




                                       51
<PAGE>   18



at least 5% higher in the current Fiscal Year than in the prior Fiscal Year.

            (e) Mortgage or Loan Acquisition Fees. For the acquisition or
purchase from an unaffiliated party of any existing mortgage or loan by the
Company, the Advisor or an Affiliate is to receive a Mortgage or Loan
Acquisition Fee equal to the lesser of (a) 1% of the amount of the mortgage or
loan purchased by the Company or (b) a brokerage or commitment fee which is
reasonable and fair under the circumstances. Such fee will not be paid in
connection with the origination or funding by the Company of any mortgage loan.

            (f) Mortgage Brokerage and Equity Refinancing Fees. For obtaining
loans to the Company or refinancing on Company properties, the Advisor or an
Affiliate is to receive a Mortgage Brokerage and Equity Refinancing Fee equal to
the lesser of (a) 1% of the amount of the loan or the amount refinanced or (b) a
brokerage or refinancing fee which is reasonable and fair under the
circumstances; provided, however that no such fee shall be paid on loans from
the Advisor or an Affiliate without the approval of the Board of Directors. No
fee shall be paid on loan extensions.




                                       52
<PAGE>   19





         12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENT FEES. The Advisor or
any of its Affiliates shall pay to the Company, one-half of any compensation
received by the Advisor or any such Affiliate from third parties with respect to
the origination, placement or brokerage of any loan made by the Company,
provided, however, the compensation retained by the Advisor or Affiliate shall
not exceed the lesser of (a) 2% of the amount of the loan committed by the
Company or (b) a loan brokerage and commitment fee which is reasonable and fair
under the circumstances.

         13. STATEMENTS. The Advisor shall furnish to the Company not later than
the tenth day of each calendar month, beginning with the second calendar month
of the term of this Agreement, a statement showing the computation of the fees,
if any, payable in respect to the next preceding calendar month (or, in the case
of incentive compensation, for the preceding Fiscal Year, as appropriate) under
the Agreement. The final settlement of incentive compensation for each Fiscal
Year shall be subject to adjustment in accordance with, and upon completion of,
the annual audit of the Company's financial statements; any payment by the
Company or repayment by the Advisor that shall be indicated to be necessary in
accordance therewith shall be made promptly after the completion of such audit
and shall



                                       53
<PAGE>   20





be reflected in the audited statements to be published by the Company.

         14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent that the
Company shall request the Advisor or any director, officer, partner, or employee
of the Advisor to render services for the Company other than those required to
be rendered by the Advisor hereunder, such additional services, if performed,
will be compensated separately on terms to be agreed upon between such party and
the Company from time to time. In particular, but without limitation, if the
Company shall request that the Advisor perform property management, leasing,
loan disbursement or similar functions, the Company and the Advisor shall enter
into a separate agreement specifying the obligations of the parties and
providing for reasonable additional compensation to the Advisor for performing
such services.

         15. EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation or reimbursement received hereunder by the Advisor, the Advisor
shall bear the following expenses:

            (a) employment expenses of the personnel employed by the Advisor
(including Directors, officers, and employees of the Company who are directors,
officers, or employees of the Advisor or




                                       54
<PAGE>   21



of any company that controls, is controlled by, or is under common control with
the Advisor), including, but not limited to, fees, salaries, wages, payroll
taxes, travel expenses, and the cost of employee benefit plans and temporary
help expenses except for those personnel expenses described in Sections 16(e)
and (p);

            (b) advertising and promotional expenses incurred in seeking
investments for the Company;

            (c) rent, telephone, utilities, office furniture and furnishings,
and other office expenses of the Advisor and the Company, except as any of such
expenses relates to an office maintained by the Company separate from the office
of the Advisor; and

            (d) miscellaneous administrative expenses relating to performance by
the Advisor of its functions hereunder.

         16. EXPENSES OF THE COMPANY. The Company shall pay all of its expenses
not assumed by the Advisor and, without limiting the generality of the
foregoing, it is specifically agreed that the following expenses of the Company
shall be paid by the Company and shall not be paid by the Advisor:

            (a) the cost of money borrowed by the Company;

            (b) income taxes, taxes and assessments on real property, and all
other taxes applicable to the Company;



                                       55
<PAGE>   22





            (c) legal, auditing, accounting, underwriting, brokerage, listing,
registration and other fees, printing, and engraving and other expenses, and
taxes incurred in connection with the issuance, distribution, transfer,
registration, and stock exchange listing of the Company's securities;

            (d) fees, salaries, and expenses paid to officers and employees of
the Company who are not directors, officers or employees of the Advisor, or of
any company that controls, is controlled by, or is under common control with the
Advisor;

            (e) expenses directly connected with the origination or purchase of
Mortgage Loans and with the acquisition, disposition, and ownership of real
estate equity interests or other property (including the costs of foreclosure,
insurance, legal, protective, brokerage, maintenance, repair, and property
improvement services) and including all compensation, traveling expenses, and
other direct costs associated with the Advisor's employees or other personnel
engaged in (i) real estate transaction legal services, (ii) internal auditing,
(iii) foreclosure and other mortgage finance services, (iv) sale or solicitation
for sale of mortgages, (v) engineering and appraisal services, and (vi) transfer
agent services;




                                       56
<PAGE>   23





            (f) expenses of maintaining and managing real estate equity
interests;

            (g) insurance, as required by the Directors (including directors'
liability insurance);

            (h) the expenses of organizing, revising, amending, converting,
modifying, or terminating the Company;

            (i) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the
Directors to holders of securities of the Company;

            (j) all expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work necessary
in maintaining relations with holders of securities, including the cost of
printing and mailing certificates for securities and proxy solicitation
materials and reports to holders of the Company's securities;

            (k) the cost of any accounting, statistical, bookkeeping or computer
equipment or computer time necessary for maintaining the books and records of
the Company and for preparing and filing Federal, State and Local tax returns;

            (l) transfer agent's, registrar's, and indenture trustee's fees and
charges;



                                       57
<PAGE>   24





            (m) legal, accounting, investment banking, and auditing fees and
expenses charged by independent parties performing these services not otherwise
included in clauses (c) and (e) of this Section 16;

            (n) expenses incurred by the Advisor, arising from the sales of
Company properties, including those expenses related to carrying out foreclosure
proceedings;

            (o) commercially reasonable fees paid to the Advisor for efforts to
liquidate mortgages before maturity, such as the solicitation of offers and
negotiation of terms of sale;

            (p) costs and expenses connected with computer services, including
but not limited to employee or other personnel compensation, hardware and
software costs, and related development and installation costs associated
therewith;

            (q) costs and expenses associated with risk management (i.e.
insurance relating to the Company's assets);

            (r) loan refinancing compensation; and

            (s) expenses associated with special services requested by the
Directors pursuant to Section 14 hereof.

         17. OTHER ACTIVITIES OF ADVISOR. The Advisor, its officers, directors,
or employees or any of its Affiliates may engage in other business activities
related to real estate investments or act




                                       58
<PAGE>   25



as advisor to any other person or entity (including another real estate
investment trust), including those with investment policies similar to the
Company, and the Advisor and its officers, directors, or employees and any of
its Affiliates shall be free from any obligation to present to the Company any
particular investment opportunity that comes to the Advisor or such persons,
regardless of whether such opportunity is in accordance with the Company's
Business Plan. However, to minimize any possible conflict, the Advisor shall
consider the respective investment objectives of, and the appropriateness of a
particular investment to each such entity in determining to which entity a
particular investment opportunity should be presented. If appropriate to more
than one entity, the Advisor shall present the investment opportunity to the
entity that has had sufficient uninvested funds for the longest period of time.

         18. LIMITATION ON OPERATING EXPENSES. To the extent that the Operating
Expenses of the Company for any fiscal year exceed the lesser of (a) 1.5% of the
average of the Book Values of Invested Assets of the Company at the end of each
calendar month of such fiscal year, or (b) the greater of 1.5% of the average of
the Net Asset Value of the Company at the end of each calendar month of such
fiscal year or 25% of the Company's Net Income, the Advisor




                                       59
<PAGE>   26



shall a refund to the Company from the fees paid to the Advisor the amount if
any, by which the Operating Expenses so exceed the applicable amount; provided,
however, that the Advisor shall not be required to refund to the Company, with
respect to any fiscal year, any amount which exceeds the aggregate of the Gross
Asset Fees paid to the Advisor under this Agreement with respect to such fiscal
year.

         19. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in
force until the next Annual Meeting of Stockholders of the Company, and,
thereafter, it may be renewed from year to year, subject to any required
approval of the Stockholders of the Company and, if any Director is an Affiliate
of the Advisor, the approval of a majority of the Directors who are not so
affiliated. Notice of renewal shall be given in writing by the Directors to the
Advisor not less than 60 days before the expiration of this Agreement or of any
extension thereof. This Agreement may be terminated for any reason without
penalty upon 60 days' written notice by the Company to the Advisor or 120 days'
written notice by the Advisor to the Company, in the former case by the vote of
a majority of the Directors who are not Affiliates of the Advisor or by the vote
of holders of a majority of the outstanding shares of the Company.
Notwithstanding the foregoing, however, in the event of any



                                       60
<PAGE>   27





material change in the ownership, control, or management of the Advisor, the
Company may terminate this Agreement without penalty and without advance notice
to the Advisor.

         20. AMENDMENTS. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise as provided herein.

         21. ASSIGNMENT. This Agreement shall not be assigned by the Advisor
without the prior consent of the Company. The Company may terminate this
Agreement in the event of its assignment by the Advisor without the prior
consent of the Company. Such an assignment or any other assignment of this
Agreement shall bind the assignee hereunder in the same manner as the Advisor is
bound hereunder. This Agreement shall not be assignable by the Company without
the consent of the Advisor, except in the case of assignment by the Company to a
corporation, association, trust, or other organization that is a successor to
the Company. Such successor shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound hereunder.

         22. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Directors,
this Agreement shall be and become terminated



                                       61
<PAGE>   28


immediately upon written notice of termination from the Directors to the Advisor
if any of the following events shall occur:

            (a) If the Advisor shall violate any provision of this Agreement,
and after notice of such violation shall not cure such default within 30 days;
or

            (b) If the Advisor shall be adjudged bankrupt or insolvent by a
court of competent jurisdiction, or an order shall be made by a court of
competent jurisdiction for the appointment of a receiver, liquidator, or trustee
of the Advisor or of all or substantially all of its property by reason of the
foregoing, or approving any petition filed against the Advisor for its
reorganization, and such adjudication or order shall remain in force or unstayed
for a period of 30 days; or

            (c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the Federal
bankruptcy laws, or for relief under any law for the relief of debtors, or shall
consent to the appointment of a receiver of itself or of all or substantially
all its property, or shall make a general assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts generally,
as they become due.




                                       62
<PAGE>   29





         The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 22 shall occur, it will give written notice thereof
to the Directors within seven days after the occurrence of such event.

         23. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder but
shall be paid all compensation accruing to the date of termination. The Advisor
shall forthwith upon such termination:

            (a) pay over to the Company all monies collected and held for the
account of the Company pursuant to this Agreement;

            (b) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of any monies
held by it, covering the period following the date of the last accounting
furnished to the Directors; and

            (c) deliver to the Directors all property and documents of the
Company then in the custody of the Advisor.

         24. MISCELLANEOUS. The Advisor shall be deemed to be in a fiduciary
relationship to the shareholders of the Company. The Advisor assumes no
responsibility under this Agreement other than




                                       63
<PAGE>   30


to render the services called for hereunder in good faith, and shall not be
responsible for any action of the Directors in following or declining to follow
any advice or recommendations of the Advisor. Neither the Advisor nor any of its
shareholders, directors, officers, or employees shall be liable to the Company,
the Directors, the holders of securities of the Company or to any successor or
assign of the Company for any losses arising from the operation of the Company
if the Advisor had determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the Company and the
liability or loss was not the result of negligence or misconduct by the Advisor.
However, in no event will the directors, officers or employees of the Advisor be
personally liable for any act or failure to act unless it was the result of such
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.

         25. NOTICES. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report, or other communication is accepted by the party to
whom it is given, and




                                       64
<PAGE>   31





shall be given by being delivered at the following addresses of the parties
hereto:

The Directors and/or the Company:

    Transcontinental Realty Investors, Inc.
    10670 North Central Expressway
    Suite 600
    Dallas, Texas 75231
    Attention: President

The Advisor:

    Basic Capital Management, Inc.
    10670 North Central Expressway
    Suite 600
    Dallas, Texas 75231
    Attention: Executive Vice President and
               Chief Financial Officer

         Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 25.

         26. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.

         27. GOVERNING LAW. This Agreement has been prepared, negotiated and
executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
Texas.




                                       65
<PAGE>   32





         28. EXECUTION. This instrument is executed and made on behalf of the
Company by an officer of the Company, not individually but solely as an officer,
and the obligations under this Agreement are not binding upon, nor shall resort
be had to the private property of, any of the Directors, stockholders, officers,
employees, or agents of the Company personally, but bind only the Company
property.

         IN WITNESS WHEREOF, TRANSCONTINENTAL REALTY INVESTORS, INC.
and BASIC CAPITAL MANAGEMENT, INC., by their duly authorized
officers, have signed these presents all as of the day and year
first above written.

                                        TRANSCONTINENTAL REALTY INVESTORS, INC.



                                        By:  /s/ Randall Paulson
                                          -------------------------------------
                                             Randall M. Paulson
                                             President



                                        BASIC CAPITAL MANAGEMENT, INC.



                                        By:  /s/ Thomas A. Holland
                                          -------------------------------------
                                             Thomas A. Holland
                                             Executive Vice President




                                       66