UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

                 For the fiscal year ended December 31, 2004

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

               For the transition period _________to _________

                         Commission file number 0-10673

                       REAL ESTATE ASSOCIATES LIMITED III
                 (Name of small business issuer in its charter)

         California                                               95-3547611
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                          55 Beattie Place, PO Box 1089
                        Greenville, South Carolina 29602
                    (Address of principal executive offices)

                                 (864) 239-1000
                            Issuer's telephone number

        Securities registered under Section 12(b) of the Exchange Act:

                                      None

        Securities registered under Section 12(g) of the Exchange Act:

                      11,432 Limited Partnership Interests
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding  twelve months (or for such shorter period that the registrant was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past ninety days.
Yes   X    No

Indicate by check mark if  disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein,  and will not be contained,  to
the  best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State Issuer's revenue for its most recent fiscal year $12,000.

State the aggregate  market value of the voting  Partnership  interests  held by
non-affiliates  computed  by  reference  to the price at which  the  Partnership
interests  were sold,  or the average bid and asked  prices of such  Partnership
interests,  as of December  31,  2004.  No market for the  Registrant's  limited
partnership  interests exists, and, therefore,  no aggregate market value can be
determined.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government  regulations.  Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including,  without limitation:  national and local
economic  conditions;  the terms of  governmental  regulations  that  affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates;  financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest;  real estate risks, including variations of real estate values and
the general  economic  climate in local markets and  competition  for tenants in
such markets;  litigation,  including  costs  associated  with  prosecuting  and
defending  claims  and  any  adverse   outcomes,   and  possible   environmental
liabilities.   Readers  should  carefully  review  the  Registrant's   financial
statements and the notes thereto,  as well as the risk factors  described in the
documents  the  Registrant  files  from  time to time  with the  Securities  and
Exchange Commission.

                                     PART I.

ITEM 1.       Description of Business

Real  Estate  Associates  Limited  III ("REAL  III" or the  "Partnership")  is a
limited  partnership  which was formed under the laws of the State of California
on July 25, 1980. On January 5, 1981, REAL III offered 3,000 units consisting of
6,000 Limited Partnership  Interests and Warrants to purchase a maximum of 6,000
Additional  Limited  Partnership  Interests through a public offering managed by
E.F.  Hutton Inc. REAL III received  $14,320,000 in  subscriptions  for units of
Limited  Partnership  Interests (at $5,000 per unit) during the period March 31,
l981 to October 30, 1981, pursuant to a registration  statement on Form S-11. As
of March 10, 1982, REAL III received an additional  $14,320,000 in subscriptions
pursuant  to the  exercise  of  warrants  and  the  sale of  Additional  Limited
Partnership Interests. Since these two transactions,  REAL III has not received,
nor are limited partners required to make, additional capital contributions. The
Partnership  shall be dissolved only upon the expiration of 52 complete calendar
years  (December 31, 2032) from the date of the formation of the  Partnership or
the  occurrence  of other events as  specified  in the terms of the  Partnership
agreement.

The general  partners of REAL III are  National  Partnership  Investments  Corp.
("NAPICO" or the "Corporate  General  Partner"),  a California  Corporation  and
National Partnership Investment Associates ("NAPIA"), a limited partnership. The
Corporate General Partner is a subsidiary of Apartment Investment and Management
Company ("AIMCO"),  a publicly traded real estate investment trust. The business
of REAL III is conducted primarily by NAPICO.

On December 3, 2001, Casden Properties Inc., entered into a merger agreement and
certain other transaction  documents with AIMCO and certain of its subsidiaries,
pursuant to which, on March 11, 2002, AIMCO acquired Casden  Properties Inc. and
its  subsidiaries,  including 100% of the  outstanding  capital stock of NAPICO.
Prior to  March  11,  2002,  Casden  Properties,  Inc.  owned a 95.25%  economic
interest in NAPICO,  with the  balance  owned by Casden  Investment  Corporation
("CIC").  CIC, which is wholly owned by Alan I. Casden,  owned 95% of the voting
stock of NAPICO prior to March 11, 2002.

REAL III holds limited  partnership  interests in nine local  partnerships  (the
"Local Partnerships") as of December 31, 2004, and a general partner interest in
Real Estate  Associates  ("REA").  The general  partners of REA are REAL III and
NAPICO.  During the year ended  December  31,  2003,  the  Partnership  sold its
interest in two Local Partnerships. During the year ended December 31, 2002, the
Partnership  sold its interest in one Local  Partnership.  In December 1998, the
Partnership  sold its interest in 20 Local  Partnerships.  Each of the remaining
Local  Partnerships owns a low income housing project which is subsidized and/or
has a mortgage  note  payable to or insured by  agencies of the federal or local
government.

The  partnerships  in which  REAL III has  invested  were,  at least  initially,
organized by private developers who acquired the sites, or options thereon,  and
applied for applicable  mortgage  insurance and  subsidies.  REAL III became the
principal limited partner in these Local  Partnerships  pursuant to arm's-length
negotiations with these developers, or others, who act as general partners. As a
limited partner,  REAL III's liability for obligations of the Local Partnerships
is  limited  to  its  investment.   The  local  general  partner  of  the  Local
Partnerships retains responsibility for developing,  constructing,  maintaining,
operating and managing the project. Under certain circumstances of default, REAL
III has the right to replace the general partner of the Local Partnerships,  but
otherwise  does  not  exercise  control  over  the  activities  and  operations,
including refinancing or selling decisions of the Local Partnerships.

Although each of the Local Partnerships in which REAL III has invested generally
owns a project  which must  compete in the market  place for  tenants,  interest
subsidies and rent  supplements from  governmental  agencies make it possible to
offer  these  dwelling  units  to  eligible  "low  income"  tenants  at  a  cost
significantly  below the  market  rate for  comparable  conventionally  financed
dwelling units in the area.

The  Partnership  does not have any  employees.  Services are  performed for the
Partnership by the Corporate General Partner and agents retained by it.

In order to stimulate  private  investment  in low income  housing,  the federal
government  and  certain  state and local  agencies  have  provided  significant
ownership  incentives,   including  among  others,   interest  subsidies,   rent
supplements,  and mortgage insurance, with the intent of reducing certain market
risks and  providing  investors  with  certain tax  benefits,  plus limited cash
distributions  and the  possibility of long-term  capital  gains.  There remain,
however,  significant  risks.  The long-term nature of investments in government
assisted  housing  limits  the  ability  of REAL  III to vary its  portfolio  in
response  to  changing  economic,  financial  and  investment  conditions;  such
investments  are also  subject to changes in local  economic  circumstances  and
housing patterns, as well as rising operating costs, vacancies,  rent collection
difficulties,  energy  shortages  and other factors which have an impact on real
estate values.  These projects also require greater management expertise and may
have higher operating expenses than conventional housing projects.

Under recently adopted law and policy,  the United States  Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment  ("HAP")  Contracts  on a long  term  basis on the  existing  terms.  In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental  assistance  payments under renewed HAP Contracts will be based
on market rentals instead of above market  rentals,  which may be the case under
existing HAP Contracts.  The payments under the renewed HAP Contracts may not be
in an amount  that  would  provide  sufficient  cash  flow to  permit  owners of
properties  subject to HAP  Contracts to meet the debt service  requirements  of
existing  loans  insured by the Federal  Housing  Administration  of HUD ("FHA")
unless such mortgage loans are  restructured.  In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and  Affordability  Act of 1997 ("MAHRAA")  provides for
the  restructuring  of  mortgage  loans  insured  by the  FHA  with  respect  to
properties  subject  to the  Section 8 program.  Under  MAHRAA,  an  FHA-insured
mortgage  loan can be  restructured  into a first  mortgage  loan  which will be
amortized on a current basis and a low interest  second mortgage loan payable to
FHA which will only be payable on  maturity  of the first  mortgage  loan.  This
restructuring results in a reduction in annual debt service payable by the owner
of the  FHA-insured  mortgage  loan and is  expected  to result in an  insurance
payment from FHA to the holder of the  FHA-insured  loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties  serving  families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.

When the HAP  Contracts are subject to renewal,  there can be no assurance  that
the  Local  Partnerships  in which the  Partnership  has an  investment  will be
permitted to restructure its mortgage  indebtedness  under MAHRAA.  In addition,
the  economic  impact  on the  Partnership  of the  combination  of the  reduced
payments  under  the  HAP  Contracts  and  the  restructuring  of  the  existing
FHA-insured mortgage loans under MAHRAA is uncertain.

Laws  benefiting   disabled  persons  may  result  in  the  Local  Partnerships'
incurrence of unanticipated expenses.  Under the Americans with Disabilities Act
of 1990,  or ADA,  all places  intended to be used by the public are required to
meet certain Federal requirements related to access and use by disabled persons.
Likewise,  the Fair Housing Amendments Act of 1988, or FHAA,  requires apartment
properties  first  occupied  after  March  13,  1990  to be  accessible  to  the
handicapped.  These  and  other  Federal,  state  and  local  laws  may  require
modifications to the Local Partnership's  properties, or restrict renovations of
the properties.  Noncompliance with these laws could result in the imposition of
fines or an award of damages to private  litigants  and also could  result in an
order to correct any  non-complying  feature,  which could result in substantial
capital  expenditures.  Although the Corporate General Partner believes that the
Local Partnership's  properties are substantially in compliance with the present
requirements,  the Local Partnerships may incur unanticipated expenses to comply
with the ADA and the FHAA.

During  2004,  the projects in which REAL III had  invested  were  substantially
rented.  The  following is a schedule of the status as of December 31, 2004,  of
the projects owned by Local Partnerships in which REAL III is a limited partner.

                   SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
                          IN WHICH REAL III HAS AN INVESTMENT
                                   DECEMBER 31, 2004
<TABLE>
<CAPTION>

                                                     Units
                                                   Authorized
                                                   For Rental
                                     Financed      Assistance         Under
                                     Insured       Section 8     Percentage of   Percentage of
                                       And       Or Other Rent    Total Units     Total Units
                         No. of    Subsidized     Supplement        Occupied       Occupied
   Name and Location      Units       Under       Program (B)        2004            2003

<S>                        <C>                                        <C>           <C>
Charlotte Lakes Apts.      553         (A)             --             90%           95%
Rochester, NY

Jenks School Apts.          83         (B)             82              99%          100%
Pawtucket, RI

Lakeside Apts.              32         (C)             21              94%           97%
Stuart, FL

Ramblewood Apts.            64         (C)            13               94%           86%
Fort Payne, AL

Santa Maria Apts.           86         (C)             86             100%          100%
San German, Puerto
Rico

Village Apts.               51         (C)            50               98%           97%
La Follette, TN


Vincente Geigel              80        (C)             80             98%          100%
Polanco Apts.
Isabela, Puerto
Rico

Vista De Jagueyes            73        (B)             73             75%           75%
Aguas Buenas, PR

Westgate Apts.               72        (C)             16             70%           85%
Albertville, AL

TOTALS                    1,094                       421
</TABLE>

(A)  The mortgage is insured by the Federal Housing Administration ("FHA") under
     the provisions of Section 236 of the National Housing Act.
(B)  The mortgage is insured by FHA under the provisions of Section 221(d)(3) of
     the National Housing Act.
(C)  The mortgage is insured by USDA, Rural Development.

During the year ended  December 31, 2003, the  Partnership  sold its interest in
two Local Partnerships.

The following table details the Partnership's ownership percentages of the Local
Partnerships  and the cost of acquisition of such  ownership.  All interests are
limited partner  interests.  Also included is the total mortgage  encumbrance on
each property for each of the Local Partnerships as of December 31, 2004.
<TABLE>
<CAPTION>

                                      Real Estate
                                      Associates
                                      Limited III   Original Cost
                                      Percentage     of Ownership   Mortgage    Notes Payable and
              Partnership              Interest        Interest       Note      Accrued Interest
<S>                                       <C>         <C>          <C>              <C>
    Alabama Properties Ltd. V             99%         $   205      $ 1,439          $    --
    Charlotte Lake River
     Associates                           95%          10,500       11,951            1,005
    Village Apartment Ltd.                98%             210        1,404               --
    Lakeside Apartments Ltd.              95%              65          898               --
    Santa Maria Limited Dividend
     Partnership Assoc.                   99%             420        2,610               --
    Marina Del Ray Limited
     Dividend Partnership Assoc.          99%             395        2,444               --
    300 Broadway Assoc.                   98%             632          481               --
    Vista Housing Assoc. L.P.             98%             445        2,681               --
    Westgate Apartments, Ltd.             94%             218          857               --
                                                      $13,090      $24,765          $ 1,005
</TABLE>

Although each Local  Partnership in which the  Partnership  has invested owns an
apartment complex which must compete with other apartment complexes for tenants,
government  mortgage  interest and rent subsidies make it possible to rent units
to eligible  tenants at below  market  rates.  In general,  this  insulates  the
properties from market competition.


<PAGE>


ITEM 2.       Description of Properties

See "Item 1" for the real estate owned by the Partnership  through the ownership
of limited partnership interests in Local Partnerships.

ITEM 3.       Legal Proceedings

The  Corporate  General  Partner is involved in various  lawsuits  arising  from
transactions  in the ordinary  course of business.  In the opinion of management
and the Corporate  General  Partner,  the claims will not result in any material
liability to the Partnership.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December  21,  2004,  the  Partnership  began  soliciting  the consent of its
limited  partners to an amendment ("the  Amendment") to the agreement of limited
partnership of the  Partnership to (1) eliminate the  requirement  that the cash
proceeds from the sale of an individual  project or project  interest must be at
least as great as the tax liability to the limited  partners  resulting from the
sale and (2) to modify the provision in the Partnership  Agreement that requires
limited partner approval for a sale of all or substantially all assets so that a
sale of a single  project  (or sale of  project  interests  related  to a single
project)  does not require  limited  partner  approval,  even if all projects or
project interests are eventually sold.

On January 10, 2005,  the consent  solicitation  expired  pursuant to its terms.
Limited  partners  owning more than 50% of all outstanding  limited  partnership
units in the Partnership consented to the Amendment.

On January 12, 2005, the Corporate  General Partner of the Partnership  executed
the Amendment as the general partner and on behalf of the limited partners.


<PAGE>

                                    PART II.

ITEM 5.       MARKET FOR THE  REGISTRANT'S  PARTNERSHIP  INTERESTS AND RELATED
              PARTNERSHIP MATTERS

The Limited  Partnership  Interests are not traded on a public exchange but were
sold through a public offering managed by E.F. Hutton Inc. It is not anticipated
that any public market will develop for the purchase and sale of any Partnership
interest;  therefore,  an investor may be unable to sell or otherwise dispose of
his or her interest in the  Partnership.  Limited  Partnership  Interests may be
transferred only if certain  requirements  are satisfied.  At December 31, 2004,
there were 1,848 registered holders of units in REAL III owning a total of 5,715
limited  partnership  units  (or  11,430  limited  partnership  interests).  The
Partnership has invested in certain government  assisted projects under programs
which in many instances  restrict the cash return  available to project  owners.
The Partnership was not designed to provide cash  distributions  to investors in
circumstances  other than  refinancing  or  disposition of its investment in the
Local  Partnerships.  A distribution  in the aggregate  amount of $3,345,000 (or
$584 per unit) was made in 1989. This  represented the proceeds from the sale of
one of the Partnership's real estate investments. In March 1999, the Partnership
made  distributions  of  $6,881,025  to the limited  partners and $69,506 to the
general partners, which included using proceeds from the sale of the partnership
interests.  In 2001, the  Partnership  paid a distribution  of $3,000,000 to the
limited partners.  In 2003, the Partnership made  distributions of approximately
$1,295,000 to the limited partners,  which involved using proceeds from the sale
of  partnership  interests  of  approximately  $210,000  and excess  reserves of
approximately $1,085,000 to the limited partners.

AIMCO and its affiliates owned 492 limited  partnership  units (the "Units") (or
984 limited partnership interests) in the Partnership  representing 8.61% of the
outstanding  Units  at  December  31,  2004.  A Unit  consists  of  two  limited
partnership  interests. A number of these Units were acquired pursuant to tender
offers  made by  AIMCO  or its  affiliates.  It is  possible  that  AIMCO or its
affiliates will acquire  additional  Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with  respect to a variety of matters that  include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Corporate  General  Partner.  Although the Corporate  General Partner
owes fiduciary duties to the limited partners of the Partnership,  the Corporate
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the Corporate  General  Partner,  as corporate  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Corporate General Partner to AIMCO as its sole stockholder.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This item should be read in conjunction with the financial  statements and other
items contained elsewhere in this document.

The Corporate  General  Partner  monitors  developments in the area of legal and
regulatory  compliance.  For example, the Sarbanes-Oxley Act of 2002 mandates or
suggests additional  compliance measures with regard to governance,  disclosure,
audit and other areas. In light of these changes,  the Partnership  expects that
it will incur higher expenses related to compliance.

Liquidity and Capital Resources

The properties in which the Partnership has invested, through its investments in
the Local Partnerships, receive one or more forms of assistance from the Federal
Government.  As a result,  the Local  Partnerships'  ability to  transfer  funds
either to the Partnership or among themselves in the form of cash distributions,
loans  or  advances  is  generally  restricted  by these  government  assistance
programs.   These  restrictions,   however,  are  not  expected  to  impact  the
Partnership's ability to meet its cash obligations.

The  Partnership's  primary sources of funds include interest income earned from
investing  available cash and distributions from the Local Partnerships in which
the  Partnership  has  invested.  It is not  expected  that  any  of  the  Local
Partnerships  in which the  Partnership  has invested  will  generate  cash flow
sufficient to provide for distributions to the Partnership's limited partners in
any material amount.

As of December 31, 2004 and 2003, the Partnership has cash and cash  equivalents
of approximately  $969,000 and $1,172,000,  respectively.  Substantially  all of
these  amounts  are on deposit  primarily  with high  credit  quality  financial
institutions,  earning interest. Interest income has been decreasing as a result
of decreasing cash balances due to  distributions  in 2003. This resulted in the
Partnership earning approximately $12,000 and $16,000 in interest income for the
years ended  December  31, 2004 and 2003,  respectively.  The amount of interest
income  varies with market  rates  available  on deposits and with the amount of
funds  available for  investment.  Cash  equivalents can be converted to cash to
meet  obligations of the Partnership as they arise.  The Partnership  intends to
continue investing available funds in this manner.

During the year ended  December 31, 2003, the  Partnership  sold its interest in
Hidden Pines, a limited partnership,  to an unrelated third party and realized a
gain of approximately  $457,000.  The gain equaled the net proceeds  received by
the Partnership,  as the Partnership had no remaining investment balance related
to this Local Partnership.

During the year ended  December 31, 2003, the  Partnership  sold its interest in
Sunshine Canyon, a limited partnership, to an unrelated third party and realized
a gain of approximately  $245,000. The gain equaled the net proceeds received by
the Partnership,  as the Partnership had no remaining investment balance related
to this Local Partnership.

The  Partnership  distributed  the  following  amounts  during  the years  ended
December 31, 2004 and 2003 (in thousands, except per unit data):
<TABLE>
<CAPTION>

                      Year Ended      Per Limited       Year Ended      Per Limited
                     December 31,     Partnership      December 31,     Partnership
                         2004             Unit             2003             Unit

<S>        <C>           <C>             <C>             <C>               <C>
Operations (1)           $ --            $ --            $1,085            $  94.83
Sale (2)                   --              --               210               18.35
                         $ --            $ --            $1,295            $ 113.18
</TABLE>

(1)   During the year ended December 31, 2003, it was determined  that a limited
      partner was overpaid  approximately  $4,500 of distributions.  The limited
      partner returned this amount during the year ended December 31, 2003.

(2)   Proceeds from the sale of Sunset Grove in 2002.

Results of Operations

At  December  31,  2004,  the   Partnership   had   investments  in  nine  Local
Partnerships,  all of which own housing  projects  that were  substantially  all
rented.  The Partnership,  as a limited partner,  does not exercise control over
the activities and operations, including refinancing or selling decisions of the
Local Partnerships.  Accordingly, the Partnership accounts for its investment in
the Local Partnerships using the equity method. Thus the individual  investments
are  carried  at cost plus the  Partnership's  share of the Local  Partnership's
profits  less  the  Partnership's  share  of  the  Local  Partnership's  losses,
distributions  and impairment  charges.  However,  since the  Partnership is not
legally  liable  for  the  obligations  of  the  Local  Partnerships,  or is not
otherwise committed to provide additional support to them, it does not recognize
losses  once its  investment  in each of the Local  Partnerships  reaches  zero.
Distributions  from the Local  Partnerships  are accounted for as a reduction of
the  investment  balance  until  the  investment  balance  is  reduced  to zero.
Subsequent  distributions  received are recognized as income in the accompanying
statements  of  operations.  For those  investments  where the  Partnership  has
determined that the carrying value of its investments approximates the estimated
fair value of those investments, the Partnership's policy is to recognize equity
in  income  of the  Local  Partnerships  only  to the  extent  of  distributions
received,  and amortization of acquisition costs from those Local  Partnerships.
The Partnership  recognized equity in income of approximately $83,000 during the
year ended December 31, 2003 from a Local  Partnership.  The Partnership did not
recognize any equity in income or loss from a Local Partnership  during the year
ended  December  31,  2004.  During  the  year  ended  December  31,  2003,  the
Partnership   received   approximately   $29,000  in  distributions  from  Local
Partnerships  that were  recognized  as income in the  statements  of operations
since the Partnership's investment in the Local Partnerships has been reduced to
zero. The Partnership did not receive any distributions  from Local Partnerships
during the year ended December 31, 2004.

At  December  31,  2004,  the  investment  balance  in eight  of the nine  Local
Partnerships had been reduced to zero.

Partnership  revenues  consist  primarily of interest income earned on temporary
investment  of funds not  required for  investment  in Local  Partnerships.  The
decrease in interest  income for the year ended  December  31,  2004,  is due to
lower average cash balances as a result of cash distributions to partners during
2003.

An annual  management  fee is payable to the  Corporate  General  Partner of the
Partnership  and is  calculated  at 0.4  percent of the  Partnership's  invested
assets.  The  management  fee is paid to the Corporate  General  Partner for its
continuing management of the Partnership's affairs. The fee is payable beginning
with  the  month  following  the  Partnership's  initial  investment  in a Local
Partnership.  Management fees were  approximately  $115,000 and $125,000 for the
years ended December 31, 2004 and 2003, respectively.

Operating  expenses,  exclusive  of the  management  fee,  consist  of legal and
accounting  fees for  services  rendered  to the  Partnership  and  general  and
administrative  expenses.  Legal and accounting fees were approximately $100,000
and $190,000 for the years ended December 31, 2004 and 2003, respectively. Legal
and  accounting  fees  decreased  for the year ended  December 31, 2004 due to a
decrease in  professional  services.  General and  administrative  expenses were
approximately  $27,000 and $35,000  for the years  ended  December  31, 2004 and
2003, respectively.

Under recently adopted law and policy,  the United States  Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment  ("HAP")  Contracts  on a long  term  basis on the  existing  terms.  In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental  assistance  payments under renewed HAP Contracts will be based
on market rentals instead of above market  rentals,  which may be the case under
existing HAP Contracts.  The payments under the renewed HAP Contracts may not be
in an amount  that  would  provide  sufficient  cash  flow to  permit  owners of
properties  subject to HAP  Contracts to meet the debt service  requirements  of
existing  loans  insured by the Federal  Housing  Administration  of HUD ("FHA")
unless such mortgage loans are  restructured.  In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and  Affordability  Act of 1997 ("MAHRAA")  provides for
the  restructuring  of  mortgage  loans  insured  by the  FHA  with  respect  to
properties  subject  to the  Section 8 program.  Under  MAHRAA,  an  FHA-insured
mortgage  loan can be  restructured  into a first  mortgage  loan  which will be
amortized on a current basis and a low interest  second mortgage loan payable to
FHA which will only be payable on  maturity  of the first  mortgage  loan.  This
restructuring results in a reduction in annual debt service payable to the owner
of the  FHA-insured  mortgage  loan and is  expected  to result in an  insurance
payment from FHA to the holder of the  FHA-insured  loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties  serving  families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.

When the HAP  Contracts are subject to renewal,  there can be no assurance  that
the  Local  Partnerships  in which the  Partnership  has an  investment  will be
permitted to restructure its mortgage  indebtedness  under MAHRAA.  In addition,
the  economic  impact  on the  Partnership  of the  combination  of the  reduced
payments  under  the  HAP  Contracts  and  the  restructuring  of  the  existing
FHA-insured mortgage loans under MAHRAA is uncertain.

AIMCO and its affiliates owned 492 limited  partnership  units (the "Units") (or
984 limited partnership interests) in the Partnership  representing 8.61% of the
outstanding  Units  at  December  31,  2004.  A Unit  consists  of  two  limited
partnership  interests. A number of these Units were acquired pursuant to tender
offers  made by  AIMCO  or its  affiliates.  It is  possible  that  AIMCO or its
affiliates will acquire  additional  Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with respect to a variety of matters,  that include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Corporate  General  Partner.  Although the Corporate  General Partner
owes fiduciary duties to the limited partners of the Partnership,  the Corporate
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the Corporate  General  Partner,  as corporate  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Corporate General Partner to AIMCO as its sole stockholder.

Recent Accounting Pronouncements

As of December 31, 2004,  the  Partnership  adopted FASB  Interpretation  No. 46
"Consolidation  of  Variable  Interest  Entities"  (or "FIN 46") and applied its
requirements to all Local  Partnerships in which the Partnership held a variable
interest. FIN 46 addresses the consolidation by business enterprises of variable
interest entities.  Generally,  a variable interest entity, or VIE, is an entity
with  one or  more  of the  following  characteristics:  (a)  the  total  equity
investment  at risk is not  sufficient  to  permit  the  entity to  finance  its
activities without additional subordinated financial support; (b) as a group the
holders of the equity  investment at risk lack (i) the ability to make decisions
about  an  entity's  activities  through  voting  or  similar  rights,  (ii) the
obligation  to absorb the expected  losses of the entity,  or (iii) the right to
receive the expected residual returns of the entity; or (c) the equity investors
have voting rights that are not  proportional  to their  economic  interests and
substantially all of the entity's activities either involve, or are conducted on
behalf of, an investor that has  disproportionately  few voting  rights.  FIN 46
requires a VIE to be consolidated in the financial statements of the entity that
is determined to be the primary  beneficiary of the VIE. The primary beneficiary
generally  is the  entity  that will  receive a majority  of the VIE's  expected
losses, receive a majority of the VIE's expected residual returns, or both.

Upon adoption of FIN 46, the Partnership  determined it held variable  interests
in nine VIE's for which the Partnership was not the primary  beneficiary.  Those
nine VIE's consist of Local  Partnerships in which the  Partnership  acquired an
interest  prior to the  adoption  of FIN 46 that  are  directly  engaged  in the
ownership and  management  of nine  apartment  properties  with a total of 1,094
units. The Partnership is involved with those VIEs as a non-controlling  limited
partner equity holder. The Partnership's maximum exposure to loss as a result of
its  involvement  with  unconsolidated  VIE's is  limited  to the  Partnership's
recorded investments in and receivables from those VIEs, which was approximately
$102,000 at December  31, 2004.  The  Partnership  may be subject to  additional
losses to the extent of any financial  support that the Partnership  voluntarily
provides in the future.

Critical Accounting Policies and Estimates

A summary of the Partnership's  significant  accounting  policies is included in
"Note 1 - Organization and Summary of Significant  Accounting Policies" which is
included in the financial  statements  in "Item 7.  Financial  Statements".  The
Corporate  General  Partner  believes that the  consistent  application of these
policies enables the Partnership to provide readers of the financial  statements
with useful and reliable  information about the Partnership's  operating results
and financial  condition.  The preparation of financial statements in conformity
with accounting  principles generally accepted in the United States requires the
Partnership to make estimates and  assumptions.  These estimates and assumptions
affect  the  reported  amounts  of  assets  and  liabilities  at the date of the
financial statements as well as reported amounts of revenues and expenses during
the  reporting  period.  Actual  results  could  differ  from  these  estimates.
Judgments  and  assessments  of  uncertainties  are  required  in  applying  the
Partnership's  accounting  policies in many areas.  The  following may involve a
higher degree of judgment and complexity.

Method of Accounting for Investments in Local Partnerships

The  Partnership,  as a limited  partner,  does not  exercise  control  over the
activities and operations,  including  refinancing or selling decisions,  of the
Local Partnerships. Accordingly, the Partnership accounts for its investments in
the Local  Partnerships  using the equity method.  The  Partnership is allocated
profits and losses of the Local Partnerships based upon its respective ownership
percentage  (between 94.9% and 99%). The  Partnership is also entitled to 99% of
the profits and losses of REA.  Distributions  of surplus  cash from  operations
from most of the Local  Partnerships  are restricted by the Local  Partnerships'
Regulatory  Agreements  with the United  States  Department of Housing and Urban
Development  ("HUD").  These  restrictions  limit the distribution to a portion,
generally  less than 10%, of the initial  invested  capital.  The excess surplus
cash is  deposited  into a  residual  receipts  reserve,  of which the  ultimate
realization by the  Partnership  is uncertain as HUD frequently  retains it upon
sale or  dissolution  of the Local  Partnership.  The  Partnership  is allocated
profits and losses and receives  distributions  from  refinancings  and sales in
accordance with the Local Partnerships' partnership agreements. These agreements
usually limit the Partnership's  distributions to an amount  substantially  less
than its ownership percentage in the Local Partnership.

The individual  investments are carried at cost plus the Partnership's  share of
the  Local  Partnership's  profits  less the  Partnership's  share of the  Local
Partnership's  losses,  distributions  and  impairment  charges.  See  "Note 1 -
Organization and Summary of Significant  Accounting  Policies" for a description
of the  impairment  policy.  The  Partnership  is not  legally  liable  for  the
obligations of the Local Partnerships and is not otherwise  committed to provide
additional  support to them.  Therefore,  it does not recognize  losses once its
investment in each of the Local  Partnerships  reaches zero.  Distributions from
the Local  Partnerships  are  accounted  for as a  reduction  of the  investment
balance until the  investment  balance is reduced to zero.  When the  investment
balance  has  been  reduced  to  zero,  subsequent  distributions  received  are
recognized as income in the accompanying statements of operations.

For those  investments  where the  Partnership  has determined that the carrying
value  of its  investments  approximates  the  estimated  fair  value  of  those
investments,  the  Partnership's  policy is to recognize equity in income of the
Local Partnerships only to the extent of distributions received and amortization
of acquisition costs from those Local Partnerships.  Therefore,  the Partnership
limits its recognition of equity earnings to the amount it expects to ultimately
realize.


<PAGE>


ITEM 7.     FINANCIAL STATEMENTS

REAL ESTATE ASSOCIATES LIMITED III

LIST OF FINANCIAL STATEMENTS


      Report of Independent Registered Public Accounting Firm

      Balance Sheet - December 31, 2004

      Statements of Operations - Years ended December 31, 2004 and 2003

      Statements  of Changes in  Partners'  (Deficiency)  Equity - Years ended
      December 31, 2004 and 2003

      Statements of Cash Flows - Years ended December 31, 2004 and 2003

      Notes to Financial Statements



<PAGE>


           Report of Independent Registered Public Accounting Firm



The Partners
Real Estate Associates Limited III


We have audited the accompanying balance sheet of Real Estate Associates Limited
III as of December 31, 2004, and the related statements of operations, partners'
(deficiency)  equity,  and cash  flows for each of the two  years in the  period
ended December 31, 2004. These financial  statements are the  responsibility  of
the  Partnership's  management.  Our  responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  We were not engaged to perform an
audit of the Partnership's internal control over financial reporting.  Our audit
included  consideration of internal control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Partnership's internal control over financial reporting. Accordingly, we express
no such opinion.  An audit also includes  examining,  on a test basis,  evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Real Estate Associates Limited
III at December 31, 2004,  and the results of its  operations and its cash flows
for each of the two years in the period ended  December 31, 2004,  in conformity
with accounting principles generally accepted in the United States.



                                                          /s/Ernst & Young LLP
Greenville, South Carolina
March 29, 2005


<PAGE>



                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                                  BALANCE SHEET
                                 (in thousands)

                                DECEMBER 31, 2004


                           Assets

  Investments in local partnerships (Note 2)                      $ 102
  Cash and cash equivalents                                          969
       Total assets                                              $ 1,071

        Liabilities and partners'(deficiency) equity

Liabilities:
  Accounts payable and accrued expenses                           $ 33

Contingencies (Note 7)

Partners' (deficiency) equity:
  General partners                                                  (145)
  Limited partners                                                 1,183
                                                                   1,038

       Total liabilities and partners' (deficiency) equity       $ 1,071

                See Accompanying Notes to Financial Statements




<PAGE>


                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                           STATEMENTS OF OPERATIONS
                   (in thousands, except per interest data)
<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                                                 2004             2003

<S>                                                              <C>              <C>
Interest income                                                  $ 12             $ 16

Operating expenses:
  Legal and accounting                                              100              190
  Management fees - partners (Note 3)                               115              125
  General and administrative (Note 3)                                27               35
      Total operating expenses                                      242              350

Loss from partnership operations                                   (230)            (334)
Gain on sale of local partnership interest (Note 2)                  --              702
Distributions from local partnerships
    recognized as income (Note 2)                                    --               29
Equity in income of local partnerships and
     amortization of acquisition costs (Note 2)                      --               83

Net (loss) income                                               $ (230)          $ 480

Net (loss) income allocated to general partners (1%)             $ (2)            $ 5
Net (loss) income allocated to limited partners (99%)              (228)             475
                                                                $ (230)          $ 480
Net (loss) income per limited partnership interest
  (Note 1)                                                     $ (19.94)        $ 41.51
Distributions per limited partnership interest                   $ --           $ 113.18

                See Accompanying Notes to Financial Statements
</TABLE>




<PAGE>


                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

            STATEMENTS OF CHANGES IN PARTNERS' (DEFICIENCY) EQUITY
                     (in thousands, except interest data)

<TABLE>
<CAPTION>


                                                     General        Limited
                                                    Partners        Partners        Total
<S>                                                                  <C>
Partnership interests (A)                                            11,430

Partners' (deficiency) equity,
  January 1, 2003                                  $  (148)      $    2,231      $   2,083

Distributions to Partners                               --           (1,295)        (1,295)

Net income for the year ended
  December 31, 2003                                      5              475            480

Partners' (deficiency) equity,
  January 1, 2004                                     (143)           1,411          1,268

Net loss for the year ended
  December 31, 2004                                     (2)            (228)          (230)

Partners' (deficiency) equity,
  December 31, 2004                                $  (145)        $  1,183        $ 1,038

(A)   Consists  of 5,715  limited  partnership  units (the  "Units")  (or 11,430
      limited  partnership  interests)  at December  31,  2004 and 2003.  A Unit
      consists of two limited  partnership  interests.  During 2003,  10 limited
      partnership  interests  were  abandoned.  (see  "Note 5 -  Abandonment  of
      Interests").

                See Accompanying Notes to Financial Statements
</TABLE>

<PAGE>


                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                            STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                                    2004            2003

Cash flows from operating activities:
<S>                                                           <C>              <C>
  Net (loss) income                                           $   (230)        $    480
  Adjustments to reconcile net (loss) income to net
    cash used in operating activities:
      Gain on sale of local partnership interest                    --             (702)
      Equity in income of local partnerships and
        amortization of acquisition costs                           --              (83)
      Decrease in advances due to affiliates                        --               (5)
      Increase (decrease) in accounts payable and
         accrued expenses                                           27              (84)
         Net cash used in operating activities                    (203)            (394)

Cash flows from investing activities:
  Distributions from local partnership recognized
   as return of capital                                             --               83
  Proceeds from sale of local partnership interest                  --              702
         Net cash provided by investing activities                  --              785

Cash flows used in financing activities:
  Distributions to partners                                         --           (1,295)

Net decrease in cash and cash equivalents                         (203)            (904)

Cash and cash equivalents, beginning of year                     1,172            2,076

Cash and cash equivalents, end of year                        $    969         $  1,172

                See Accompanying Notes to Financial Statements
</TABLE>



<PAGE>




                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2004

1.  Organization and Summary of Significant Accounting Policies

Organization

Real Estate  Associates  Limited III (the  "Partnership",  or "Registrant")  was
formed  under the  California  Limited  Partnership  Act on July 25,  1980.  The
Partnership  was  formed  to  invest  either  directly  or  indirectly  in other
partnerships  which  own  and  operate  primarily   federal,   state  and  local
government-assisted   housing  projects.   The  general  partners  are  National
Partnership  Investments Corp. ("NAPICO" or the "Corporate General Partner"),  a
California  Corporation and National Partnership Investment Associates ("NAPIA")
a  limited  partnership.  The  Corporate  General  Partner  is a  subsidiary  of
Apartment  Investment and Management Company  ("AIMCO"),  a publicly traded real
estate investment trust. The business of the Partnership is conducted  primarily
by NAPICO.

On December 3, 2001, Casden Properties Inc., entered into a merger agreement and
certain other transaction  documents with AIMCO and certain of its subsidiaries,
pursuant to which, on March 11, 2002, AIMCO acquired Casden  Properties Inc. and
its  subsidiaries,  including 100% of the  outstanding  capital stock of NAPICO.
Prior to  March  11,  2002,  Casden  Properties,  Inc.  owned a 95.25%  economic
interest in NAPICO,  with the  balance  owned by Casden  Investment  Corporation
("CIC").  CIC, which is wholly owned by Alan I. Casden,  owned 95% of the voting
stock of NAPICO prior to March 11, 2002.

The general  partners  have a one percent  interest in profits and losses of the
Partnership.  The limited  partners  have the  remaining 99 percent  interest in
proportion to their respective investments.

The  Partnership  shall be  dissolved  only upon the  expiration  of 52 complete
calendar  years  (December  31,  2032)  from  the date of the  formation  of the
Partnership  or the  occurrence of other events as specified in the terms of the
Partnership agreement.

Upon total or partial  liquidation  of the  Partnership  or the  disposition  or
partial  disposition of a project or project  interest and  distribution  of the
proceeds,  the  general  partners  will  be  entitled  to a  liquidation  fee as
stipulated  in the  Partnership  agreement.  The  limited  partners  will have a
priority return equal to their invested  capital  attributable to the project(s)
or project interest(s) sold and shall receive from the sale of the project(s) or
project  interest(s) an amount sufficient to pay state and federal income taxes,
if any,  calculated  at the maximum rate then in effect.  The general  partners'
liquidation fee may accrue but shall not be paid until the limited partners have
received distributions equal to 100 percent of their capital contributions.

Basis of Presentation

The  accompanying  financial  statements  have been prepared in conformity  with
accounting principles generally accepted in the United States.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.

Method of Accounting for Investments in Local Partnerships

The investments in local limited  partnerships  (the "Local  Partnerships")  are
accounted for on the equity method. Acquisition,  selection fees and other costs
related  to the  acquisition  of the  projects  are  capitalized  as part of the
investment  account and are being amortized by the straight line method over the
estimated lives of the underlying assets, which is generally 30 years.

Net (Loss) Income Per Limited Partnership Interest

Net (loss) income per limited partnership  interest was computed by dividing the
limited  partners'  share  of  net  (loss)  income  by  the  number  of  limited
partnership  interests  outstanding  at the beginning of the year. The number of
limited  partnership  interests was 11,430 for the years ended December 31, 2004
and 2003. During 2003, 10 limited partnership interests were abandoned.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks. At certain times, the amount of
cash deposited at a bank may exceed the limit on insured deposits. Cash balances
include  approximately  $969,000 at December 31, 2004 that are  maintained by an
affiliated   management  company  on  behalf  of  affiliated  entities  in  cash
concentration accounts.

Impairment of Long-Lived Assets

The  Partnership  reviews its  investments in long-lived  assets to determine if
there  has  been  any  permanent   impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable.  If the sum of the  expected  future  cash  flows is less  than the
carrying amount of the assets,  the Partnership  recognizes an impairment  loss.
There were no impairment  losses  recorded  during the years ended  December 31,
2004 and 2003, respectively.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair  Value  of  Financial  Instruments,"  requires  disclosure  of  fair  value
information about significant  financial  instruments.  The Partnership believes
that the carrying amount of other assets and liabilities reported on the balance
sheet  that  require  such  disclosure  approximates  fair  value  due to  their
short-term maturity.

Segment Reporting

SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information"  established standards for the way that public business enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments in interim financial reports.  SFAS No. 131 also establishes  standards
for related disclosures about products and services, geographic areas, and major
customers.  As defined in SFAS No. 131, the  Partnership has only one reportable
segment.

Recent Accounting Pronouncements

As of December 31, 2004,  the  Partnership  adopted FASB  Interpretation  No. 46
"Consolidation  of  Variable  Interest  Entities"  (or "FIN 46") and applied its
requirements to all Local  Partnerships in which the Partnership held a variable
interest. FIN 46 addresses the consolidation by business enterprises of variable
interest entities.  Generally,  a variable interest entity, or VIE, is an entity
with  one or  more  of the  following  characteristics:  (a)  the  total  equity
investment  at risk is not  sufficient  to  permit  the  entity to  finance  its
activities without additional subordinated financial support; (b) as a group the
holders of the equity  investment at risk lack (i) the ability to make decisions
about  an  entity's  activities  through  voting  or  similar  rights,  (ii) the
obligation  to absorb the expected  losses of the entity,  or (iii) the right to
receive the expected residual returns of the entity; or (c) the equity investors
have voting rights that are not  proportional  to their  economic  interests and
substantially all of the entity's activities either involve, or are conducted on
behalf of, an investor that has  disproportionately  few voting  rights.  FIN 46
requires a VIE to be consolidated in the financial statements of the entity that
is determined to be the primary  beneficiary of the VIE. The primary beneficiary
generally  is the  entity  that will  receive a majority  of the VIE's  expected
losses, receive a majority of the VIE's expected residual returns, or both.

Upon adoption of FIN 46, the Partnership  determined it held variable  interests
in nine VIE's for which the Partnership was not the primary  beneficiary.  Those
nine VIE's consist of Local  Partnerships in which the  Partnership  acquired an
interest  prior to the  adoption  of FIN 46 that  are  directly  engaged  in the
ownership and  management  of nine  apartment  properties  with a total of 1,094
units. The Partnership is involved with those VIEs as a non-controlling  limited
partner equity holder. The Partnership's maximum exposure to loss as a result of
its  involvement  with  unconsolidated  VIE's is  limited  to the  Partnership's
recorded investments in and receivables from those VIEs, which was approximately
$102,000 at December  31, 2004.  The  Partnership  may be subject to  additional
losses to the extent of any financial  support that the Partnership  voluntarily
provides in the future.

2.  Investments in Local Partnerships

As of December 31, 2004, the Partnership holds limited partnership  interests in
nine Local  Partnerships.  In addition,  the Partnership holds a general partner
interest in Real Estate Associates ("REA").  NAPICO is also a general partner in
REA.  The  Local   Partnerships  own  residential  low  income  rental  projects
consisting of 1,094  apartment  units.  The mortgage loans of these projects are
payable to or insured by various governmental agencies.

The  Partnership,  as a limited  partner,  does not  exercise  control  over the
activities and operations,  including  refinancing or selling decisions,  of the
Local Partnerships. Accordingly, the Partnership accounts for its investments in
the Local  Partnerships  using the equity method.  The  Partnership is allocated
profits and losses of the Local Partnerships based upon its respective ownership
percentage  (between 94.9% and 99%). The  Partnership is also entitled to 99% of
the profits and losses of REA.  Distributions  of surplus  cash from  operations
from most of the Local  Partnerships  are restricted by the Local  Partnerships'
Regulatory  Agreements  with the United  States  Department of Housing and Urban
Development  ("HUD").  These  restrictions  limit the distribution to a portion,
generally  less than 10%, of the initial  invested  capital.  The excess surplus
cash is  deposited  into a  residual  receipts  reserve,  of which the  ultimate
realization by the  Partnership  is uncertain as HUD frequently  retains it upon
sale or  dissolution  of the Local  Partnership.  The  Partnership  is allocated
profits and losses and receives  distributions  from  refinancings  and sales in
accordance with the Local Partnerships' partnership agreements. These agreements
usually limit the Partnership's  distributions to an amount  substantially  less
than its ownership percentage in the Local Partnership.

The individual  investments are carried at cost plus the Partnership's  share of
the  Local  Partnership's  profits  less the  Partnership's  share of the  Local
Partnership's  losses,  distributions  and  impairment  charges.  See  "Note 1 -
Organization and Summary of Significant  Accounting  Policies" for a description
of the  impairment  policy.  The  Partnership  is not  legally  liable  for  the
obligations of the Local Partnerships and is not otherwise  committed to provide
additional  support to them.  Therefore,  it does not recognize  losses once its
investment in each of the Local  Partnerships  reaches zero.  Distributions from
the Local  Partnerships  are  accounted  for as a  reduction  of the  investment
balance until the  investment  balance is reduced to zero.  When the  investment
balance  has  been  reduced  to  zero,  subsequent  distributions  received  are
recognized as income in the accompanying statements of operations.

For those  investments  where the  Partnership  has determined that the carrying
value  of its  investments  approximates  the  estimated  fair  value  of  those
investments,  the  Partnership's  policy is to recognize equity in income of the
Local Partnerships only to the extent of distributions received and amortization
of acquisition costs from those Local Partnerships.  Therefore,  the Partnership
limits its recognition of equity earnings to the amount it expects to ultimately
realize.

At  December  31,  2004,  the  investment  balance  in eight  of the nine  Local
Partnerships had been reduced to zero.

Although the  Partnership's  recorded value of its investments and its equity in
income and/or  distributions  from the Local  Partnerships  are individually not
material to the overall financial position of the Partnership,  the following is
selected unaudited financial  information from the combined financial statements
at December 31, 2004 and for each of the two years in the period ended  December
31, 2004, of the Local Partnerships in which the Partnership has invested:

            Condensed Combined Balance Sheet of the Local Partnerships
                            (in thousands-unaudited)

                                                    December 31,
                                                        2004
Assets
  Land                                               $  1,253
  Building and improvements, net of accumulated
   depreciation of approximately $33,512                6,173
  Other assets                                          3,326
Total assets                                         $ 10,752

Liabilities and Partners Deficit:
Liabilities:
  Mortgage notes payable                             $ 24,765
  Notes payable                                         1,005
  Other liabilities                                     1,810
                                                       27,580
Partners' deficit                                     (16,828)

Total Liabilities and Partners' Deficit              $ 10,752


        Condensed Combined Results of Operations of the Local Partnerships
                            (in thousands-unaudited)
                                                       Years ended December 31,
                                                         2004            2003

Rental and other income                                $ 6,225         $ 6,127

Expenses:
Operating expenses                                       4,277           4,197
Financial expenses                                       1,349           1,424
Depreciation                                               815             892
Total expenses                                           6,441           6,513

Loss from continuing operations                        $  (216)        $  (386)

In accordance with SFAS No. 144, the results of Hidden Pines and Sunshine Canyon
have been  excluded from the condensed  combined  results of operations  for the
year ended December 31, 2003 due to the sale of the  Partnership's  interests in
the Local Partnerships during 2003.

Charlotte Lakes River Associates,  one of the Local Partnerships,  is a 553-unit
apartment  building  in  Rochester,  New  York.  The  Managing  General  Partner
("Managing  General  Partner")  is the Finch  Group and Real  Estate  Associates
Limited III is the Limited Partner ("Limited Partner").  Currently, the mortgage
on the property is in default,  as cash generated  from property  operations has
been insufficient to meet required  principal and interest payments due pursuant
to the loan agreement, placing the property at risk of foreclosure. The Managing
General Partner has entered into formal  negotiations  with the lender and local
housing  agencies in an attempt to  negotiate a  forbearance,  a cure plan,  and
strategy to return the property to positive cash flow.  The  Partnership  has no
investment  balance in the Local  Partnership.  The Partnership,  as the limited
partner of the Local  Partnership,  has been asked to consent to the sale of the
property to a third party.

During the year ended  December 31, 2003, the  Partnership  sold its interest in
Hidden Pines, a limited partnership,  to an unrelated third party and realized a
gain of approximately  $457,000.  The gain equaled the net proceeds  received by
the Partnership,  as the Partnership had no remaining investment balance related
to this Local Partnership.

During the year ended  December 31, 2003, the  Partnership  sold its interest in
Sunshine Canyon, a limited partnership, to an unrelated third party and realized
a gain of approximately  $245,000. The gain equaled the net proceeds received by
the Partnership,  as the Partnership had no remaining investment balance related
to this Local Partnership.

Under recently adopted law and policy,  the United States  Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment  ("HAP")  Contracts  on a long  term  basis on the  existing  terms.  In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental  assistance  payments under renewed HAP Contracts will be based
on market rentals instead of above market  rentals,  which may be the case under
existing HAP Contracts.  The payments under the renewed HAP Contracts may not be
in an amount  that  would  provide  sufficient  cash  flow to  permit  owners of
properties  subject to HAP  Contracts to meet the debt service  requirements  of
existing  loans  insured by the Federal  Housing  Administration  of HUD ("FHA")
unless such mortgage loans are  restructured.  In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and  Affordability  Act of 1997 ("MAHRAA")  provides for
the  restructuring  of  mortgage  loans  insured  by the  FHA  with  respect  to
properties  subject  to the  Section 8 program.  Under  MAHRAA,  an  FHA-insured
mortgage  loan can be  restructured  into a first  mortgage  loan  which will be
amortized on a current basis and a low interest  second mortgage loan payable to
FHA which will only be payable on  maturity  of the first  mortgage  loan.  This
restructuring results in a reduction in annual debt service payable to the owner
of the  FHA-insured  mortgage  loan and is  expected  to result in an  insurance
payment from FHA to the holder of the  FHA-insured  loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties  serving  families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.

When the HAP  Contracts are subject to renewal,  there can be no assurance  that
the  Local  Partnerships  in which the  Partnership  has an  investment  will be
permitted to restructure its mortgage  indebtedness  under MAHRAA.  In addition,
the  economic  impact  on the  Partnership  of the  combination  of the  reduced
payments  under  the  HAP  Contracts  and  the  restructuring  of  the  existing
FHA-insured mortgage loans under MAHRAA is uncertain.

3.  Transactions with Affiliated Parties

Under the terms of the Restated  Certificate and Agreement of Limited  Partners,
the Partnership is obligated to NAPICO for an annual management fee equal to 0.4
percent of the  invested  assets.  Invested  assets are  defined as the costs of
acquiring project interests,  including the proportionate amount of the mortgage
loans  related to the  Partnership's  interest  in the  capital  accounts of the
respective Local Partnerships. The management fee incurred for each of the years
ended  December 31, 2004 and 2003,  was  approximately  $115,000  and  $125,000,
respectively.

The Partnership  reimburses  NAPICO for certain  expenses.  The reimbursement to
NAPICO was  approximately  $14,000 for each of the years ended December 31, 2004
and 2003 and is included in general and administrative expenses.

AIMCO and its affiliates owned 492 limited  partnership  units (the "Units") (or
984 limited partnership interests) in the Partnership  representing 8.61% of the
outstanding  Units  at  December  31,  2004.  A Unit  consists  of  two  limited
partnership  interests. A number of these Units were acquired pursuant to tender
offers  made by  AIMCO  or its  affiliates.  It is  possible  that  AIMCO or its
affiliates will acquire  additional  Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with respect to a variety of matters,  that include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Corporate  General  Partner.  Although the Corporate  General Partner
owes fiduciary duties to the limited partners of the Partnership,  the Corporate
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the Corporate  General  Partner,  as corporate  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Corporate General Partner to AIMCO as its sole stockholder.

4.  Income Taxes

The  Partnership  is not taxed on its income.  The  partners  are taxed in their
individual  capacities based upon their  distributive share of the Partnership's
taxable  income  or  loss  and are  allowed  the  benefits  to be  derived  from
off-setting  their  distributive  share of the tax losses against taxable income
from other sources  subject to passive loss  limitations.  The taxable income or
loss differs from  amounts  included in the  statements  of  operations  because
different  methods are used in determining the losses of the Local  Partnerships
as  discussed  below.  The tax  loss  is  allocated  to the  partner  groups  in
accordance with Section 704(b) of the Internal Revenue Code and therefore is not
necessarily proportionate to the interest percentage owned.

A reconciliation follows:

                                                  Years Ended December 31,
                                                     2004            2003
                                                       (in thousands)

Net (loss) income per financial statements        $  (230)         $   480

  Other                                                --             (412)
  Partnership's share of Local Partnership            290            2,062
Income per tax return                             $    60          $ 2,130
Net income per limited partnership interest       $  5.17          $184.29

The following is a reconciliation between the Partnership's reported amounts and
the federal tax basis of net assets (liabilities):

                                                   December 31, 2004
                                                     (in thousands)

      Net assets as reported                           $  1,038
      Add (deduct):
       Investment in Local Partnerships                 (15,263)
        Deferred offering expenses                        3,896
       Other                                                558
      Net deficit - federal tax basis                  $ (9,771)

5.    Abandonment of Limited Partnership Interests

During the year  ended  December  31,  2003,  the number of limited  partnership
interests  decreased by 10 due to limited partners abandoning their interest(s).
There  were no  abandonments  during  the  year  ended  December  31,  2004.  In
abandoning  his  or  her  limited  partnership   interests,  a  limited  partner
relinquishes all right, title, and interest in the partnership as of the date of
abandonment.  However,  the limited partner is allocated his or her share of net
income  or loss for that  year.  The  income  or loss  per  limited  partnership
interest in the accompanying statements of operations is calculated based on the
number of interests outstanding at the beginning of the year.

6.        Real Estate and  Accumulated  Depreciation  of Local  Partnerships  in
          which REAL III Has Invested (unaudited)

The following is an unaudited summary of real estate,  accumulated  depreciation
and  encumbrances  of the Local  Partnerships in which REAL III has invested (in
thousands-unaudited):
<TABLE>
<CAPTION>

                                         Buildings
                                            And
                                          Related
                                         Personal            Accumulated    Date of
     Description       EncumbranceLand   Property  Total(2)  Depreciation Construction
                                                                             (2)

Alabama Properties
<S>                       <C>    <C>     <C>       <C>       <C>          <C>  <C>
 Ltd. V                   (1)    $   53  $ 2,156   $ 2,209   $ 1,406      1980-1981
Charlotte River
 Assoc.                   (1)       552   19,458    20,010    18,192        1980
Village Apartments
 Ltd.                     (1)        65    1,868     1,933     1,485      1981-1982
Lakeside Apts. Ltd.       (1)        72    1,018     1,090       849      1980-1981
Santa Maria Ltd.
 Dividend
 Partnership Assoc.       (1)       107    3,498     3,605     2,682      1981-1982
Marina Del Ray
 Ltd. Dividend
 Partnership Assoc.       (1)       124    3,140     3,264     2,369      1981-1982
300 Broadway Assoc.       (1)        97    3,708     3,805     2,732      1981-1982
Vista Housing Assoc.      (1)       103    3,335     3,438     2,759      1981-1982
Westgate Apt. Ltd.        (1)        80    1,504     1,584     1,038      1980-1981
Total                     (1)    $1,253  $39,685   $40,938   $33,512

 (1) Schedule of Encumbrances (unaudited)
</TABLE>

<TABLE>
<CAPTION>

                                                                  Notes
                                                                Payable and
                                                    Mortgage      Accrued
Partnership Name                                      Notes       Interest     Total
                                                              (in thousands)
<S>                                                  <C>           <C>        <C>
Alabama Properties Ltd. V                            $ 1,439       $    --    $ 1,439
Charlotte River Assoc.                                11,951         1,005     12,956
Village Apartments Ltd.                                1,404            --      1,404
Lakeside Apartments Ltd.                                 898            --        898
Santa Maria Limited Dividend
 Partnership Assoc.                                    2,610            --      2,610
Marina Del Day Ltd. Dividend Partnership Assoc.        2,444            --      2,444
300 Broadway Assoc.                                      481            --        481
Vista Housing Assoc.                                   2,681            --      2,681
Westgate Apts. Ltd.                                      857            --        857
Total - December 31, 2004                            $24,765       $ 1,005    $25,770
</TABLE>

(2) Reconciliation of real estate (unaudited)

                                                 Years Ended December 31,
                                                   2004           2003
                                                      (in thousands)
       Real Estate:

Balance at beginning of year                     $ 40,824       $ 43,346
Improvements during the year                          161            251
Disposals of rental properties                        (47)        (2,773)
Balance at end of year                           $ 40,938       $ 40,824

       Reconciliation of accumulated depreciation (unaudited)

                                                 Years Ended December 31,
                                                   2004           2003
                                                      (in thousands)
       Accumulated Depreciation:

Balance at beginning of year                     $ 32,738       $ 34,508
Depreciation expense for the year                     815            892
Disposals of rental properties                        (41)        (2,662)
Balance at end of year                           $ 33,512       $ 32,738

7. CONTINGENCIES

The  Corporate  General  Partner is involved in various  lawsuits  arising  from
transactions  in the ordinary  course of business.  In the opinion of management
and the Corporate  General  Partner,  the claims will not result in any material
liability to the Partnership.

As  previously  disclosed,  the  Central  Regional  Office of the United  States
Securities  and  Exchange   Commission   (the  "SEC")  is  conducting  a  formal
investigation relating to certain matters.  Although the staff of the SEC is not
limited  in the  areas  that it may  investigate,  AIMCO  believes  the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003,  forecasted  guidance,  accounts payable,  rent concessions,
vendor  rebates,  capitalization  of payroll and certain  other  costs,  and tax
credit  transactions.  AIMCO is cooperating  fully. AIMCO is not able to predict
when the matter  will be  resolved.  AIMCO does not  believe  that the  ultimate
outcome  will  have a  material  adverse  effect on its  consolidated  financial
condition or results of operations.  Similarly,  the Corporate  General  Partner
does not believe that the ultimate  outcome will have a material  adverse effect
on the Partnership's financial condition or results of operations.

<PAGE>

ITEM 8.       CHANGES IN AND DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

              None.

ITEM 8A.     CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures.  The Partnership's management,  with the
participation of the principal executive officer and principal financial officer
of the Corporate  General Partner,  who are the equivalent of the  Partnership's
principal executive officer and principal financial officer,  respectively,  has
evaluated  the  effectiveness  of  the  Partnership's  disclosure  controls  and
procedures (as such term is defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report.  Based on such  evaluation,  the principal
executive  officer and  principal  financial  officer of the  Corporate  General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal  financial officer,  respectively,  have concluded that, as of the
end of such period,  the  Partnership's  disclosure  controls and procedures are
effective.

(b) Internal Control Over Financial  Reporting.  There have not been any changes
in the Partnership's  internal control over financial reporting (as such term is
defined in Rules  13a-15(f)  and  15d-15(f)  under the Exchange  Act) during the
fourth quarter of 2004 that have materially  affected,  or are reasonably likely
to  materially  affect,  the  Partnership's   internal  control  over  financial
reporting.

ITEM 8B.    Other Information

            None.



<PAGE>


                                    PART III.

ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

Real Estate Associates  Limited III (the  "Partnership" or the "Registrant") has
no directors or officers.  The general  partner  responsible  for conducting the
business  of  the  Partnership  is  National  Partnership   Investments  Corp  a
California Corporation ("NAPICO" or the "Corporate General Partner").

The names and ages of, as well as the positions and offices held by, the present
directors  and officers of NAPICO are set forth  below:  The  Corporate  General
Partner manages and controls  substantially all of the Partnership's affairs and
has general  responsibility  and ultimate authority in all matters affecting its
business.  There are no family  relationships  between or among any directors or
officers.

David R. Robertson              38    President, Chief Executive Officer
                                        and Director
Harry G. Alcock                 41    Executive Vice President and Director
Charles McKinney                53    Senior Vice President and Director
                                        of Asset Management
Jeffrey H. Sussman              39    Senior Vice President, General
                                        Counsel and Secretary
Brian H. Shuman                 42    Senior Vice President and Chief
                                        Financial Officer

David R. Robertson has been President, Chief Executive Officer and a Director of
the Corporate  General  Partner since  October 2002.  Mr.  Robertson has been an
Executive  Vice  President  of AIMCO  since  February  2002,  and was  appointed
President and Chief  Executive  Officer of AIMCO  Capital in October  2002.  Mr.
Robertson  is  responsible  for  property   operations,   asset  management  and
transaction   activities   within  AIMCO   Capital's   portfolio  of  affordable
properties,  and for  redevelopment  and  construction  activities  for both the
conventional  and  affordable  property  portfolios.  Since  February  1996, Mr.
Robertson has been Chairman and Chief Executive Officer of Robeks Corporation, a
privately held chain of specialty food stores.

Harry G. Alcock was appointed as a Director of the Corporate  General Partner in
October 2004 and was appointed  Executive Vice President of the General  Partner
in February 2004 and has been  Executive  Vice  President  and Chief  Investment
Officer of AIMCO since October 1999.  Prior to October 1999 Mr. Alcock served as
a Vice  President of AIMCO from July 1996 to October 1997,  when he was promoted
to Senior Vice  President  Acquisitions  where he served until October 1999. Mr.
Alcock has had responsibility for acquisition and financing  activities of AIMCO
since July 1994.

Charles McKinney has been Senior Vice President and Director of Asset Management
of the  Corporate  General  Partner and AIMCO Capital since January 2003 and has
overall responsibility for monitoring the construction, lease-up, operations and
compliance  issues for all  assets  constituting  a part of  AIMCO's  affordable
portfolio.  Mr.  McKinney  joined AIMCO as Vice President of Transactions in the
Affordable  Group  in  June  2002  and  had   responsibility   for  value  added
dispositions  of  affordable  properties  in the  Western  portion of the United
States.  From  September  2000  through  May 2002,  Mr.  McKinney  was  Managing
Underwriter for Real Estate Recovery, Inc. where he was responsible for the real
estate loan underwriting and loan review for the company's  clients.  From March
1998 through August 2000, Mr.  McKinney was the Executive  Managing  Director of
American Capital Advisors, Inc. an investment banking company.

Jeffrey H. Sussman has been Senior Vice President, General Counsel and Secretary
of the Corporate  General  Partner since joining  NAPICO in 1998. Mr. Sussman is
responsible for the legal affairs of NAPICO and its affiliates. Prior to joining
NAPICO in 1998, Mr. Sussman was an associate with the law firm of Rus, Miliband,
Williams & Smith in Irvine,  California.  His  practice  emphasized  real estate
finance  and  insolvency  law and  included  the  representation  of  borrowers,
lenders, and court-appointed  trustees in matters involving apartment complexes,
retail centers and hotels.

Brian H. Shuman has been Senior Vice  President and Chief  Financial  Officer of
the  Corporate  General  Partner  since  joining  NAPICO in 2000.  Mr. Shuman is
responsible  for  the  financial  affairs  of  NAPICO  as  well  as the  limited
partnership  sponsored by it. From 1996 until joining NAPICO in August 2000, Mr.
Shuman was Vice President - Finance for Preferred  Health  Management  Inc., the
largest  provider  of  worker   compensation   diagnostic  imaging  services  in
California formed in 1996, and was responsible for establishing and managing the
accounting, billing, collection, treasury and financial reporting departments.

The board of directors of the Corporate General Partner does not have a separate
audit  committee.  As such,  the board of  directors  of the  Corporate  General
Partner fulfills the functions of an audit committee. The board of directors has
determined  that Brian H. Shuman meets the  requirement  of an "audit  committee
financial expert".

The directors and officers of the Corporate  General Partner with authority over
the Partnership are all employees of subsidiaries of AIMCO.  AIMCO has adopted a
code of ethics that applies to such  directors  and  officers  that is posted on
AIMCO's  website  (www.AIMCO.com).   AIMCO's  website  is  not  incorporated  by
reference to this filing.

ITEM 10.   EXECUTIVE COMPENSATION

None of the directors and officers of the Corporate General Partner received any
remuneration from the Partnership during the year ended December 31, 2004.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT

(a)        Security Ownership of Certain Beneficial Owners

The general partners own all of the outstanding general partnership interests of
REAL  III;  except  as  noted  below,  no  person  or  entity  is  known  to own
beneficially in excess of 5% of the outstanding limited partnership interests.

           Entity                   Number of Units         Percentage
AIMCO Properties, L.P.                    492                  8.61%

AIMCO  Properties,  L.P.  is  ultimately  controlled  by AIMCO.  Its  business
address is 4582 S. Ulster Parkway, Suite 1100, Denver, Colorado 80237

(b)   None of the directors and officers of the  Corporate  General  Partner own
      directly or beneficially any limited partnership interests in Real III.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Under the terms of the Restated  Certificate and Agreement of Limited  Partners,
the Partnership is obligated to NAPICO for an annual management fee equal to 0.4
percent of the  invested  assets.  Invested  assets are  defined as the costs of
acquiring project interests,  including the proportionate amount of the mortgage
loans  related to the  Partnership's  interest  in the  capital  accounts of the
respective Local  Partnerships.  The management fee incurred for the years ended
December  31,  2004  and  2003,   was   approximately   $115,000  and  $125,000,
respectively.

The Partnership  reimburses  NAPICO for certain  expenses.  The reimbursement to
NAPICO was  approximately  $14,000 for each of the years ended December 31, 2004
and 2003, and is included in general administrative expenses.

AIMCO and its affiliates owned 492 limited  partnership  units (the "Units") (or
984 limited partnership interests) in the Partnership  representing 8.61% of the
outstanding  Units  at  December  31,  2004.  A Unit  consists  of  two  limited
partnership  interests. A number of these Units were acquired pursuant to tender
offers  made by  AIMCO  or its  affiliates.  It is  possible  that  AIMCO or its
affiliates will acquire  additional  Units in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with respect to a variety of matters,  that include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Corporate  General  Partner.  Although the Corporate  General Partner
owes fiduciary duties to the limited partners of the Partnership,  the Corporate
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the Corporate  General  Partner,  as corporate  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Corporate General Partner to AIMCO as its sole stockholder.

ITEM 13.    Exhibits

            See Exhibit Index.

Item 14.    Principal Accountant Fees and Services

The Corporate  General Partner has reappointed  Ernst & Young LLP as independent
auditors to audit the financial  statements  of the  Partnership  for 2005.  The
aggregate  fees billed for  services  rendered by Ernst & Young LLP for 2004 and
2003 are described below.

Audit Fees. Fees for audit services  totaled  approximately  $49,000 and $33,000
for 2004 and 2003,  respectively.  Fees for audit services also include fees for
the reviews of the Partnership's Quarterly Reports on Form 10-QSB.

Tax Fees. Fees for tax services  totaled  approximately  $12,000 and $32,000 for
2004 and 2003, respectively.


<PAGE>


                                   SIGNATURES


In accordance  with the  requirements of Section 13 or 15(d) of the Exchange Act
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                               REAL ESTATE ASSOCIATES LIMITED III
                               (a California Limited Partnership)

                                    By:   NATIONAL PARTNERSHIP INVESTMENTS CORP.
                                          Corporate General Partner

                                    By:   /s/David R. Robertson
                                          David R. Robertson
                                          President and Chief Executive
                                          Officer

                                    By:   /s/Brian H. Shuman
                                          Brian H. Shuman
                                          Senior Vice President and
                                          Chief Financial Officer

                                    Date: March 31, 2005

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.



/s/David R. Robertson         President,  Chief  Executive  Date: March 31, 2005
David R. Robertson             Officer and Director

/s/Harry G. Alcock            Executive Vice President      Date: March 31, 2005
Harry G. Alcock               and Director

/s/Brian H. Shuman            Senior  Vice  President  and  Date: March 31, 2005
Brian H. Shuman                 Chief Financial Officer


<PAGE>


                       REAL ESTATE ASSOCIATES LIMITED III
                                  EXHIBIT INDEX


Exhibit     Description of Exhibit

  3         Articles  of  incorporation  and  bylaws:  The  registrant  is not
            incorporated.  The Partnership  Agreement was filed with Form S-11
            #268983 incorporated herein by reference.

  3.1       Amendments  to  Restated   Certificate   and  Agreement  of  Limited
            Partnership,  incorporated by reference to the Registrant's Form 8-K
            dated January 24, 2005.

  3.2       Restated   Certificate   and   Agreement   of  Limited   Partnership
            incorporated by reference to the Registrant's Form 8-K dated January
            24, 2005.

  31.1      Certification  of equivalent of Chief Executive  Officer pursuant to
            Securities  Exchange  Act  Rules  13a-14(a)/15d-14(a),   as  Adopted
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2       Certification of equivalent of Chief Financial  Officer pursuant to
             Securities  Exchange  Act  Rules  13a-14(a)/15d-14(a),  as  Adopted
             Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32.1      Certification  Pursuant  to  18  U.S.C.  Section  1350,  as  Adopted
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Exhibit 31.1


                                  CERTIFICATION


I, David R. Robertson, certify that:


1.    I have  reviewed  this  annual  report  on  Form  10-KSB  of  Real  Estate
      Associates Limited III;

2.    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact or omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the small  business  issuer as of, and for, the periods  presented in this
      report;

4.    The  small  business  issuer's  other  certifying  officer(s)  and  I  are
      responsible  for  establishing  and  maintaining  disclosure  controls and
      procedures (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) for
      the small business issuer and have:

      (a)   Designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            small business issuer, including its consolidated  subsidiaries,  is
            made  known to us by  others  within  those  entities,  particularly
            during the period in which this report is being prepared;

      (b)   Evaluated  the   effectiveness   of  the  small  business   issuer's
            disclosure  controls and procedures and presented in this report our
            conclusions about the  effectiveness of the disclosure  controls and
            procedures, as of the end of the period covered by this report based
            on such evaluation; and

      (c)   Disclosed in this report any change in the small  business  issuer's
            internal  control over financial  reporting that occurred during the
            small  business  issuer's  most  recent  fiscal  quarter  (the small
            business  issuer's  fourth  fiscal  quarter in the case of an annual
            report) that has  materially  affected,  or is reasonably  likely to
            materially affect, the small business issuer's internal control over
            financial reporting; and

 5.   The  small  business  issuer's  other  certifying  officer(s)  and I  have
      disclosed,  based on our most recent  evaluation of internal  control over
      financial reporting, to the small business issuer's auditors and the audit
      committee of the small  business  issuer's  board of directors (or persons
      performing the equivalent functions):

      (a)   All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely  affect the small business  issuer's
            ability  to  record,   process,   summarize  and  report   financial
            information; and


      (b)   Any fraud,  whether or not  material,  that  involves  management or
            other  employees who have a significant  role in the small  business
            issuer's internal control over financial reporting.


Date:  March 31, 2005

                                    /s/David R. Robertson
                                    David R. Robertson
                                    President and Chief  Executive  Officer of
                                    National Partnership Investments Corp.,
                                    equivalent of the chief executive  officer
                                    of the Partnership


<PAGE>



Exhibit 31.2


                                  CERTIFICATION


I, Brian H. Shuman, certify that:


1.    I have  reviewed  this  annual  report  on  Form  10-KSB  of  Real  Estate
      Associates Limited III;

2.    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact or omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the small  business  issuer as of, and for, the periods  presented in this
      report;

4.    The  small  business  issuer's  other  certifying  officer(s)  and  I  are
      responsible  for  establishing  and  maintaining  disclosure  controls and
      procedures (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) for
      the small business issuer and have:

      (a)   Designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            small business issuer, including its consolidated  subsidiaries,  is
            made  known to us by  others  within  those  entities,  particularly
            during the period in which this report is being prepared;

      (b)   Evaluated  the   effectiveness   of  the  small  business   issuer's
            disclosure  controls and procedures and presented in this report our
            conclusions about the  effectiveness of the disclosure  controls and
            procedures, as of the end of the period covered by this report based
            on such evaluation; and

      (c)   Disclosed in this report any change in the small  business  issuer's
            internal  control over financial  reporting that occurred during the
            small  business  issuer's  most  recent  fiscal  quarter  (the small
            business  issuer's  fourth  fiscal  quarter in the case of an annual
            report) that has  materially  affected,  or is reasonably  likely to
            materially affect, the small business issuer's internal control over
            financial reporting; and

5.    The  small  business  issuer's  other  certifying  officer(s)  and I  have
      disclosed,  based on our most recent  evaluation of internal  control over
      financial reporting, to the small business issuer's auditors and the audit
      committee of the small  business  issuer's  board of directors (or persons
      performing the equivalent functions):

      (a)   All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely  affect the small business  issuer's
            ability  to  record,   process,   summarize  and  report   financial
            information; and


      (b)   Any fraud,  whether or not  material,  that  involves  management or
            other  employees who have a significant  role in the small  business
            issuer's internal control over financial reporting.


Date:  March 31, 2005

                               /s/Brian H. Shuman
                                 Brian H. Shuman
                               Senior  Vice   President  and  Chief
                               Financial    Officer   of   National
                               Partnership    Investments    Corp.,
                               equivalent  of the  chief  financial
                               officer of the Partnership


<PAGE>


Exhibit 32.1


                          Certification of CEO and CFO
                       Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002



In connection  with the Annual  Report on Form 10-KSB of Real Estate  Associates
Limited III (the  "Partnership"),  for the year ended December 31, 2004 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
David R.  Robertson,  as the  equivalent of the chief  executive  officer of the
Partnership,  and Brian H.  Shuman,  as the  equivalent  of the chief  financial
officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350,  as adopted  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002,
that, to the best of his knowledge:

      (1)   The Report fully complies with the  requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The  information  contained in the Report  fairly  presents,  in all
            material respects, the financial condition and results of operations
            of the Partnership.


                                           /s/David R. Robertson
                                    Name:  David R. Robertson
                                    Date:  March 31, 2005


                                           /s/Brian H. Shuman
                                    Name:  Brian H. Shuman
                                    Date:  March 31, 2005


This  certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.