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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 333-113863



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PALADIN REALTY INCOME PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 20-0378980                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                                         |  |           
|-------------------------------------------------------- |  | ----------
|10880 Wilshire Blvd., Suite 1400 Los Angeles, California |  | 90024     
|(Address of Principal Executive Offices)                 |  | (Zip Code)

(310) 996-8704

(Registrants Telephone Number, Including Area Code)



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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 12 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 90 days. Yes þ No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large accelerated filer ̈an accelerated filer ̈or a non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No þ

As of
April 17, 2006, there were 336,004 outstanding shares of common stock of Paladin Realty Income Properties, Inc.



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PALADIN REALTY INCOME PROPERTIES, INC.

INDEX



|        |  |                                                                                                                                                                      |  |     
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                                                                      |  | Page
|PART I  |  | FINANCIAL INFORMATION                                                                                                                                                |  |     
|        |  |                                                                                                                                                                     
|Item 1. |  | Financial Statements                                                                                                                                                 |  | 1   
|        |  |                                                                                                                                                                     
|        |  | Paladin Realty Income Properties, Inc. and Subsidiary Condensed Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005                   |  | 1   
|        |  |                                                                                                                                                                     
|        |  | Paladin Realty Income Properties, Inc. and Subsidiary Condensed Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited) |  | 2   
|        |  |                                                                                                                                                                     
|        |  | Paladin Realty Income Properties, Inc. and Subsidiary Condensed Consolidated Statement of Shareholders Equity for the three months ended March 31, 2006 (unaudited) |  | 3   
|        |  |                                                                                                                                                                     
|        |  | Paladin Realty Income Properties, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited) |  | 4   
|        |  |                                                                                                                                                                     
|        |  | Notes to Condensed Consolidated Financial Statements                                                                                                                 |  | 5   
|        |  |                                                                                                                                                                     
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                |  | 14  
|        |  |                                                                                                                                                                     
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                           |  | 21  
|        |  |                                                                                                                                                                     
|Item 4. |  | Controls and Procedures                                                                                                                                              |  | 22  
|        |  |                                                                                                                                                                     
|PART II |  | OTHER INFORMATION                                                                                                                                                    |  |     
|        |  |                                                                                                                                                                     
|Item 1. |  | Legal Proceedings                                                                                                                                                    |  | 23  
|        |  |                                                                                                                                                                     
|Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                          |  | 23  
|        |  |                                                                                                                                                                     
|Item 3. |  | Defaults Upon Senior Securities                                                                                                                                      |  | 23  
|        |  |                                                                                                                                                                     
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                                  |  | 23  
|        |  |                                                                                                                                                                     
|Item 5. |  | Other Information                                                                                                                                                    |  | 23  
|        |  |                                                                                                                                                                     
|Item 6. |  | Exhibits                                                                                                                                                             |  | 23  



i



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

PALADIN REALTY INCOME PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                 |  | March 31, 2006 |           |   | December 31, 2005 |  
|ASSETS                                                                                                                                                                           |  |                |           |   |                   |   |           |  
|Investment in PRIP 801, LLC                                                                                                                                                      |  | $              | 1,838,219 |   |                   | $ | 1,838,534 |  
|Cash and cash equivalents                                                                                                                                                        |  |                | 1,029,358 |   |                   |   | 71,131    |  
|Restricted cash                                                                                                                                                                  |  |                | 125,000   |   |                   |   | 50,000    |  
|Prepaid insurance and other assets                                                                                                                                               |  |                | 180,309   |   |                   |   | 16,532    |  
|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  
|TOTAL ASSETS                                                                                                                                                                     |  | $              | 3,172,886 |   |                   | $ | 1,976,197 |  
|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                             |  |                |           |   |                   |   |           |  
|Due to affiliates                                                                                                                                                                |  | $              | 78,289    |   |                   | $ | 181,013   |  
|Unaccepted subscriptions for common shares                                                                                                                                       |  |                | 125,000   |   |                   |   | 50,000    |  
|Other liabilities                                                                                                                                                                |  |                | 39,500    |   |                   |   | 45,279    |  
|Dividends payable                                                                                                                                                                |  |                | 32,257    |   |                   |   | 17,639    |  
|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  
|Total liabilities                                                                                                                                                                |  |                | 275,046   |   |                   |   | 293,931   |  
|Minority interest                                                                                                                                                                |  |                | 190,668   |   |                   |   | 192,800   |  
|Shareholders equity                                                                                                                                                             |  |                |           |   |                   |   |           |  
|Preferred shares, $0.01 par value, 100,000,000 shares authorized; none issued or outstanding                                                                                     |  |                |          |   |                   |   |          |  
|Common shares, $0.01 par value, 750,000,000 shares authorized; 328,137 shares and 173,527 shares issued and outstanding as of March 31,
2006 and December 31, 2005, respectively |  |                | 3,281     |   |                   |   | 1,735     |  
|Additional paid-in-capital                                                                                                                                                       |  |                | 2,815,434 |   |                   |   | 1,566,911 |  
|Distributions in excess of earnings                                                                                                                                              |  |                | (111,543  | ) |                   |   | (79,180   | )
|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  
|Total shareholders equity                                                                                                                                                       |  |                | 2,707,172 |   |                   |   | 1,489,466 |  
|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                       |  | $              | 3,172,886 |   |                   | $ | 1,976,197 |  
|                                                                                                                                                                                 |  |                |           |   |                   |   |           |  

See notes to condensed consolidated financial statements



1



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PALADIN REALTY INCOME PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                |  |                              |         |   |      |   |      
|--------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | -----
|                                                                |  | Three months ended March 31,
|                                                                |  | 2006                         |         |   | 2005
|Revenues                                                        |  |                              |         |   |      |   |      
|Interest income                                                 |  | $                            | 2,103   |   |      | $ | 2,883
|                                                                |  |                              |         |   |      |   |      
|Expenses                                                        |  |                              |         |   |      |   |      
|General and administrative expenses                             |  |                              | 10,854  |   |      |   |     
|                                                                |  |                              |         |   |      |   |      
|Total Expenses                                                  |  |                              | 10,854  |   |      |   |     
|                                                                |  |                              |         |   |      |   |      
|Income / (loss) before equity in earnings and minority interest |  |                              | (8,751  | ) |      |   | 2,883
|Equity in earnings of PRIP 801, LLC                             |  |                              | 20,271  |   |      |   |     
|Minority interest share of income                               |  |                              | 794     |   |      |   | 2,813
|                                                                |  |                              |         |   |      |   |      
|Net Income                                                      |  | $                            | 10,726  |   |      | $ | 70   
|                                                                |  |                              |         |   |      |   |      
|Net income per common share                                     |  |                              |         |   |      |   |      
|Basic                                                           |  | $                            | 0.04    |   |      | $ | 0.14 
|                                                                |  |                              |         |   |      |   |      
|Diluted                                                         |  | $                            | 0.04    |   |      |   | N/A  
|                                                                |  |                              |         |   |      |   |      
|Weighted average number of common shares outstanding            |  |                              |         |   |      |   |      
|Basic                                                           |  |                              | 246,273 |   |      |   | 500  
|                                                                |  |                              |         |   |      |   |      
|Diluted                                                         |  |                              | 247,739 |   |      |   | N/A  
|                                                                |  |                              |         |   |      |   |      

See notes to condensed consolidated financial statements



2



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PALADIN REALTY INCOME PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

For the three months ended March 31, 2006

(Unaudited)



|                                            |  |               |  |                           |       |  |                                    |           |   |                          |   |          |   |  |   |           |  
|------------------------------------------- |  | ------------- |  | ------------------------- | ----- |  | ---------------------------------- | --------- | - | ------------------------ | - | -------- | - |  | - | --------- | -
|                                            |  | Common Shares |  | AdditionalPaid-in Capital |       |  | Distributionsin Excess
of Earnings |           |   | TotalShareholdersEquity |  
|                                            |  | Common shares |  | Amount                    |       |  |                                   
|BALANCE, December 31, 2005                  |  | 173,527       |  | $                         | 1,735 |  | $                                  | 1,566,911 |   |                          | $ | (79,180  | ) |  | $ | 1,489,466 |  
|Issuance of common shares                   |  | 142,610       |  |                           | 1,426 |  |                                    | 1,422,861 |   |                          |   |         |   |  |   | 1,424,287 |  
|Selling commissions and dealer manager fees |  |              |  |                           |      |  |                                    | (133,201  | ) |                          |   |         |   |  |   | (133,201  | )
|Offering costs                              |  |              |  |                           |      |  |                                    | (42,729   | ) |                          |   |         |   |  |   | (42,729   | )
|Issuance of common shares to directors      |  | 12,000        |  |                           | 120   |  |                                    | (120      | ) |                          |   |         |   |  |   |          |  
|Share-based compensation expense            |  |              |  |                           |      |  |                                    | 1,712     |   |                          |   |         |   |  |   | 1,712     |  
|Dividends declared                          |  |              |  |                           |      |  |                                    |          |   |                          |   | (43,089  | ) |  |   | (43,089   | )
|Net income                                  |  |              |  |                           |      |  |                                    |          |   |                          |   | 10,726   |   |  |   | 10,726    |  
|                                            |  |               |  |                           |       |  |                                    |           |   |                          |   |          |   |  |   |           |  
|BALANCE, March 31, 2006                     |  | 328,137       |  | $                         | 3,281 |  | $                                  | 2,815,434 |   |                          | $ | (111,543 | ) |  | $ | 2,707,172 |  
|                                            |  |               |  |                           |       |  |                                    |           |   |                          |   |          |   |  |   |           |  

See notes to condensed consolidated financial statements



3



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PALADIN REALTY INCOME PROPERTIES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                             |  |                             |           |   |      |   |        
|-------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | -------
|                                                                                             |  | Three months endedMarch 31,
|                                                                                             |  | 2006                        |           |   | 2005
|CASH FLOWS FROM OPERATING ACTIVITIES                                                         |  |                             |           |   |      |   |        
|Net income                                                                                   |  | $                           | 10,726    |   |      | $ | 70     
|Adjustments to reconcile net income to net cash (used in) / provided by operating activities |  |                             |           |   |      |   |        
|Equity in earnings from joint venture                                                        |  |                             | (20,271   | ) |      |   |       
|Amortization of deferred compensation                                                        |  |                             | 1,712     |   |      |   |       
|Minority interest                                                                            |  |                             | 794       |   |      |   | 2,813  
|Decrease in due to affiliates                                                                |  |                             | (54,918   | ) |      |   |       
|Increase in prepaid insurance and other assets                                               |  |                             | (163,777  | ) |      |   |       
|Increase in other liabilities                                                                |  |                             | 35,015    |   |      |   |       
|                                                                                             |  |                             |           |   |      |   |        
|Net cash (used in) / provided by operating activities                                        |  |                             | (190,719  | ) |      |   | 2,883  
|                                                                                             |  |                             |           |   |      |   |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                         |  |                             |           |   |      |   |        
|Investment in real estate joint venture                                                      |  |                             | (40,794   | ) |      |   |       
|Distributions from real estate joint venture                                                 |  |                             | 20,586    |   |      |   |       
|                                                                                             |  |                             |           |   |      |   |        
|Net cash used in investing activities                                                        |  |                             | (20,208   | ) |      |   |       
|                                                                                             |  |                             |           |   |      |   |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                         |  |                             |           |   |      |   |        
|Proceeds from issuance of common shares                                                      |  |                             | 1,424,287 |   |      |   |       
|Increase in escrowed investor proceeds                                                       |  |                             | (75,000   | ) |      |   |       
|Increase in unaccepted subscriptions for common stock in restricted cash                     |  |                             | 75,000    |   |      |   |       
|Selling commissions and dealer manager fees                                                  |  |                             | (133,201  | ) |      |   |       
|Offering costs                                                                               |  |                             | (42,729   | ) |      |   |       
|Decrease in due to affiliates                                                                |  |                             | (47,806   | ) |      |   |        
|Dividends paid                                                                               |  |                             | (28,471   | ) |      |   |       
|Distributions to minority interest                                                           |  |                             | (2,926    | ) |      |   |       
|                                                                                             |  |                             |           |   |      |   |        
|Net cash provided by financing activities                                                    |  |                             | 1,169,154 |   |      |   |       
|                                                                                             |  |                             |           |   |      |   |        
|Net increase in cash and cash equivalents                                                    |  |                             | 958,227   |   |      |   | 2,883  
|Cash and cash equivalents - beginning of period                                              |  |                             | 71,131    |   |      |   | 205,000
|                                                                                             |  |                             |           |   |      |   |        
|Cash and cash equivalents - end of period                                                    |  | $                           | 1,029,358 |   |      | $ | 207,883
|                                                                                             |  |                             |           |   |      |   |        
|Supplemental disclosure of noncash investing and financing activities                        |  |                             |           |   |      |   |        
|Dividends payable                                                                            |  | $                           | 32,257    |   |      | $ |       
|Issuance of common stock for compensation plan                                               |  | $                           | 120,000   |   |      | $ |       

See notes to condensed consolidated financial statements



4



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements
(Unaudited)

March 31, 2006 and 2005

1.Organization

Paladin Realty Income Properties, Inc., a Maryland corporation (Paladin REIT or
the Company), was formed on October 31, 2003 and intends to provide investors the potential for income through investment in a diversified portfolio of real estate properties, focusing primarily on investments that produce current
income. Paladin REIT intends to invest in a variety of real estate product types, including apartments, office buildings, industrial buildings, shopping centers and hotels. Paladin REIT may also make real estate related investments, which include
first mortgages or second mortgages, mezzanine loans or preferred equity investments relating to the same types of properties that Paladin REIT may acquire directly. Paladin REIT intends to qualify as a REIT and to elect to be taxed as a REIT for
U.S. federal income tax purposes beginning with the taxable year ending December 31, 2006. Subject to certain restrictions and limitations, the business of Paladin REIT is managed by Paladin Realty Advisors, LLC (Paladin Advisors),
an affiliate of Paladin REIT, pursuant to an advisory agreement dated February 28, 2005, as amended February 28, 2006. Paladin Advisors supervises and manages the day-to-day operations of Paladin REIT and selects the real estate and real
estate related investments it acquires, subject to oversight by the board of directors. Paladin Advisors also provides marketing, sales and client services on behalf of Paladin REIT.

As of March 31, 2006, Paladin REIT had received proceeds of $3,133,756 for 316,137 shares, including 500 shares purchased by its sponsor, Paladin
Realty Partners, LLC (Paladin Realty) on November 26, 2003.

Paladin REIT intends to own substantially all of its assets
and conduct its operations through Paladin Realty Income Properties, L.P., its operating partnership (the Paladin OP). As of March 31, 2006 and December 31, 2005, Paladin Advisors holds a 6.0% and 10.5% limited partnership
interest, respectively, and Paladin REIT holds a 94.0% and 89.5% general partnership interest, respectively, in Paladin OP. Management expects Paladin REITs ownership percentage in Paladin OP to continue to increase as Paladin REIT invests net
proceeds from the Offering in Paladin OP.

2.Summary of Significant Accounting Policies

Basis of Presentation

These condensed
financial statements are unaudited; however, amounts presented in the balance sheet as of December 31, 2005 are derived from Paladin REITs audited financial statements as of that date. For further information, refer to the financial
statements and footnotes of the year ended December 31, 2005 included in Paladin REITs Form 10-K for the fiscal year ended December 31, 2005 filed on March 28, 2006. In the opinion of the Companys management, the
statements for the unaudited periods as of and for the period ended March 31, 2006 and 2005 presented in this Form 10-Q include all adjustments necessary to present a fair presentation of such periods. Such adjustments consist of normal
recurring items.

The condensed consolidated financial statements include the accounts of Paladin REIT and its wholly-owned and controlled
entities. All intercompany balances and transactions have been eliminated in consolidation.



5



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



Investments in Real Estate Joint Venture

Paladin REITs investment in real estate joint venture consists of a joint venture interest in PRIP 801, LLC, which owns a property in Little Rock,
Arkansas as described in Note 3. Investment in real estate joint venture is accounted for on the equity basis of accounting and Paladin REIT records its proportionate share of net income or loss on the equity basis. Contributions to and
distributions received from the real estate joint venture are reported as increases or decreases in the carrying value of the investment in PRIP 801 LLC.

Paladin REIT will evaluate its investments in accordance with Financial Accounting Standards Board, Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which is referred to
as FIN 46R. If Paladin REIT determines that the joint venture is a variable interest entity (VIE) and that Paladin REIT is the primary beneficiary as defined in FIN 46R, it would account for such investment as if
it were a consolidated subsidiary. For a joint venture investment which is not a VIE or in which Paladin REIT is not the primary beneficiary, Paladin REIT will consider other relevant accounting literature including Accounting Principles Board
Opinion 18The Equity Method of Accounting for Investments in Common Stock, Statement of Position 78-9Accounting for Investments in Real Estate Ventures, and Emerging Issues Task Force Issue 04-5 to determine the method of accounting for
each of the partially-owned entities. In accordance with the above pronouncements, Paladin REIT will determine whether it should consolidate the entity or account for it on the equity method or cost method. Factors that will be considered in
determining whether or not Paladin REIT exercises control include substantive participating rights of partners on significant business decisions, including dispositions and acquisitions of assets, financing and operating and capital budgets, board
and management representatives and authority and other contractual rights of our partners. To the extent that Paladin REIT is deemed to control these entities, these entities would be consolidated. The Company has determined that Paladin OP and the
investment in PRIP 801, LLC are not VIEs. Paladin REIT consolidates Paladin OP, as it is the majority owner and exercises control over all significant decisions. Paladin REIT accounts for its investment in PRIP 801, LLC under the equity method of
accounting, as the other member has substantive participating rights as defined in EITF 04-5 and SOP 78-9. This investment is recorded initially at cost, and subsequently adjusted for equity in earnings or losses and cash contributions and
distributions.

On a periodic basis Paladin REIT will evaluate whether there are any indicators that the value of its investments in
partially-owned entities are impaired. An investment is impaired if Paladin REITs estimate of the value of the investment is less than the carrying amount. The ultimate realization of Paladin REITs investment in partially-owned entities
is dependent on a number of factors including the performance of that entity and market conditions. If Paladin REIT determines that a decline in the value of a partially-owned entity is other than temporary, then Paladin REIT would record an
impairment charge.

Use of Estimates

The presentation of the condensed consolidated financial statements requires management to make estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.



6



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



Cash Equivalents

Cash equivalents represent highly liquid investments purchased with an original maturity of three months or less.

Income Taxes

For the year ending December 31, 2006, Paladin REIT intends to make an election to be taxed as a
REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code) and intends to be taxed as such beginning with its taxable year ending December 31, 2006. However, Paladin REIT believes that it will
be organized and operate in such a manner as to qualify for treatment as a REIT and intends to operate in such a manner so that Paladin REIT will remain qualified as a REIT for federal income tax purposes.

Organization and Offering Costs

Organization
and offering costs of Paladin REIT are paid by Paladin Advisors or its affiliates, including Paladin Realty, on behalf of Paladin REIT and directly by Paladin REIT. Organization and offering costs consist of actual legal, accounting, printing and
other offering expenses, including amounts to reimburse Paladin Advisors, its affiliates or Prospect Financial Advisors, LLC, its dealer manager, for all marketing related costs and expenses, including, but not limited to, expenses relating to
registering and marketing the shares and other marketing and organization costs, technology costs and expenses attributable to the Offering, and payment or reimbursement of bona fide due diligence expenses of Prospect and broker-dealers
participating in the Offering. Paladin REIT anticipates that, pursuant to the advisory agreement, Paladin REIT will be obligated to reimburse Paladin Advisors or its affiliates for amounts advanced for organization and offering costs, provided that
Paladin Advisors and its affiliates will be responsible for the payment of organization and offering costs to the extent they exceed 3.0% of gross proceeds from the Offering and will be required to return to Paladin REIT any amount Paladin REIT
reimburses them in excess of 3.0% of the gross proceeds from the Offering.

Paladin REIT incurred organization and offering costs of
$3,314,265 and $3,038,095 as of March 31, 2006 and December 31, 2005, respectively. Following receipt of the minimum offering on December 2, 2005, such costs only become a liability of Paladin REIT to the extent they do not exceed
3.0% of the gross proceeds of the Offering. When recorded by Paladin REIT, organization costs are expensed as incurred and offering costs are charged to stockholders equity.

As a result, as of March 31, 2006 and 2005, Paladin REIT recognized no organization costs in its condensed consolidated statements of operations and
$42,729 in offering costs charged to stockholders equity, which represents 3% of the gross offering proceeds raised in the Offering as of March 31, 2006. Subject to the 3% limitation, the remaining $3,221,401 in organization and offering
costs, as of March 31, 2006 will be reimbursed in future periods as Paladin REIT receives additional proceeds of the Offering.

During
the period ended March 31, 2006 Paladin REIT paid $90,535 of offering costs. Because of the 3% limitation, Paladin REIT only recognized $42,729 as a charged to stockholders equity with the remaining $47,806 recorded as a reduction in due
to affiliates.



7



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



Expense Reimbursement

Pursuant to the Advisory Agreement, Paladin Advisors is entitled to reimbursement of actual expenses incurred for administrative and other services provided to Paladin REIT by Paladin Advisors and its affiliates for
which they do not otherwise receive a fee. Paladin REIT will not reimburse Paladin Advisors for operating expenses that in the fiscal year then ended exceeded the greater of (1) 2% of the average invested assets of Paladin REIT or (2) 25%
of the net income of Paladin REIT (the 2%/25% Rule), and Paladin Advisors must reimburse Paladin REIT quarterly for any amounts by which the operating expenses of Paladin REIT exceeds the 2%25% Rule in the previous four consecutive fiscal
quarters (the Expense Period).

The average invested assets of Paladin REIT for any period are equal to the average book value
of Paladin REITs assets invested in equity interests in, and loans secured by, real estate before reserves for depreciation or bad debts or other similar non-cash reserves computed by taking the average of such values at the end of each month
during the period. The net income of Paladin REIT for any period is equal to Paladin REITs total revenue less total expenses other than additions to reserves for depreciation, bad debts or other similar non-cash reserves for such period.
Operating expenses include all expenses incurred by Paladin REIT under general accepted accounting principles (including the asset management fee), but excluding organization and offering expenses, selling commissions and dealer manager fees,
interest payments, taxes, non-cash expenditures such as depreciation, amortization and bad debt reserves, the subordinated disposition fee, acquisition and advisory fees and expenses and distributions pursuant to Paladin Advisors subordinated
participation interest in Paladin OP.

Paladin Advisors must reimburse the excess expenses to Paladin REIT within 60 days after the end of
each fiscal quarter unless the independent directors determine that the excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient. Within 60 days after the end of any Expense Period for which total operating
expenses exceed the 2%/25% Rule, Paladin REIT will send its stockholders a written disclosure, together with an explanation of the factors the independent directors considered in arriving at the conclusion that the excess expenses were justified.
However, at Paladin Advisors option, Paladin Advisors or its affiliate, as applicable may defer receipt of any portion of the asset management fee or reimbursement of expenses and elect to receive such payments, without interest, in any
subsequent fiscal year that Paladin Advisors designates.

During the Expense Period ended December 31, 2005, Paladin REITs
operating expenses including expenses incurred on behalf of Paladin REIT by Paladin Advisors and its affiliates exceeded the 2%/25% Rule by $626,753. During the Expense Period ended March 31, 2006, Paladin REITs operating expenses
including expenses incurred on behalf of Paladin REIT by Paladin Advisors and its affiliates exceeded the 2%/25% Rule by $719,788. In accordance with the advisory agreement, Paladin Advisors has deferred payment of such amount and it was recorded as
a reduction in general and administrative expenses and amounts due to affiliates.

Per Share Data

The Company presents both basic and diluted earnings per share, or EPS. Basic EPS excludes potentially dilutive securities and is computed by dividing net
income available to common stockholders



8



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



by the weighted average number of common shares outstanding during the period. Dilutive EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stocks were exercised, where such exercise would result in a lower EPS amount. The diluted EPS includes weighted average unvested restricted shares issued to certain independent directors totaling 12,000 shares for
the three months ended March 31, 2006. At March 31, 2005, the Company had not issued any potentially dilutive securities. Accordingly, no diluted earnings per share was computed.

Unaccepted Subscriptions for Common Shares

Unaccepted subscriptions for common shares includes proceeds related to subscriptions which were held in escrow but had not been accepted by the Company as of March 31, 2006 and December 31, 2005.

Fair Value of Financial Instruments

The fair
values of the Companys cash and cash equivalents, other assets, dividends payable and other liabilities approximate the carrying values due to the short-term nature of these financial instruments.

Stock-based Compensation

Under the terms of
the Independent Director Incentive Stock Plan, Paladin REIT granted 3,000 shares of restricted common stock to each of the four independent directors on March 21, 2006. One-third of the restricted common stock will vest on each of the first
three anniversaries of December 2, 2005, the date Paladin REIT reached its minimum offering. There are 60,000 shares in total authorized under the Independent Director Incentive Stock Plan.

On March 21, 2006, Paladin REIT started recording compensation expenses for restricted common stock as required by Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based Payment, revised 2004 (SFAS No. 123(R)). Compensation expenses for common stock unvested at March 21, 2006 is based on the grant date fair value of the common shares calculated
under SFAS No. 123(R) and will be recognized using the straightline attribution method. Compensation expense is only recorded for common shares expected to be vested. Paladin REIT recognizes the expense related to these shares over the vesting
period. For the quarter ended March 31, 2006, Paladin REIT recorded $1,712 of related compensation expense and included such amounts in general and administrative expenses in the accompanying condensed consolidated statements of operations.

Reportable Segments

FASB
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About Segments of Enterprise and Related Information, establishes standards for reporting financial and descriptive information about an
enterprises reportable segments. Management has determined that the Company has one reportable segment, which is owning interests in real estate investments.

3.Investment in PRIP 801, LLC

Paladin REIT has a 74% interest in PRIP 801, LLC, a joint
venture between Paladin REIT and 801 FO, LLC, which owns 801 Fiber Optic Drive. 801 Fiber Optic Drive consists of approximately 10.95 acres of real property and a 56,336 square foot building that was completed in 2001, which is 100%



9



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



leased to FedEx Ground Package System, Inc., which we refer to as FedEx Ground, pursuant to a ten year net lease that commenced on August 1, 2001 and
expires on July 31, 2011. FedEx Ground is a subsidiary of FedEx Corporation, a provider of transportation, e-commerce and supply management services. FedEx Ground also has the option to extend the lease for two additional five year periods. The
first option is through July 31, 2016 at $405,792 per annum. The second option is through July 31, 2021 at $446,376 per annum.

Condensed financial information of PRIP 801, LLC is summarized as follows:

Condensed Balance Sheets



|                                      |  |                              |           |   |                  |   |          
|------------------------------------- |  | ---------------------------- | --------- | - | ---------------- | - | ---------
|ASSETS                               
|                                      |  | March 31,2006                |           |   | December 31,2005
|Investment in real estate, net        |  | $                            | 4,076,310 |   |                  | $ | 4,096,524
|Other assets                          |  |                              | 199,353   |   |                  |   | 196,401  
|                                      |  |                              |           |   |                  |   |          
|Total Assets                          |  | $                            | 4,275,663 |   |                  | $ | 4,292,925
|                                      |  |                              |           |   |                  |   |          
|LIABILITIES AND MEMBERS EQUITY      
|                                      |  |                             
|Mortgage loan payable                 |  | $                            | 1,950,000 |   |                  | $ | 1,950,000
|Other liabilities                     |  |                              | 10,936    |   |                  |   | 28,680   
|Members equity                       |  |                              | 2,314,727 |   |                  |   | 2,314,245
|                                      |  |                              |           |   |                  |   |          
|Total Liabilities and Members Equity |  | $                            | 4,275,663 |   |                  | $ | 4,292,925
|                                      |  |                              |           |   |                  |   |          
|Companys share of members equity    |  | $                            | 1,712,905 |   |                  | $ | 1,712,548
|                                      |  |                              |           |   |                  |   |          
|                                     
|Condensed Statements of Operations   
|                                      |  | Three months ended March 31,
|                                      |  | 2006                         |           |   | 2005            
|Revenues and interest income          |  | $                            | 84,871    |   |                  | $ | N/A      
|Expenses                              |  |                              | (56,570   | ) |                  |   | N/A      
|                                      |  |                              |           |   |                  |   |          
|Net income                            |  | $                            | 28,301    |   |                  | $ | N/A      
|                                      |  |                              |           |   |                  |   |          
|Companys share of net income         |  | $                            | 20,943    |   |                  | $ | N/A      
|                                      |  |                              |           |   |                  |   |          

The mortgage loan pays interest only at a fixed interest rate of 5.498% through November 1,



10



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



2010, the anticipated repayment date. If the mortgage loan is not repaid or refinanced as of the anticipated repayment date, interest will accrue at a rate
per annum equal to the greater of (a) 8.498% and (b) the treasury rate plus three percentage points. Pursuant to the terms of a cash management agreement, the borrower is required to post a $550,000 letter of credit by the 25thmonth anniversary of the loan date, or the lender will sweep and retain all cash flow from the Property. If the borrower does
not pay off the loan on November 1, 2010, the lender can apply the letter of credit (or retained cash flow) and will continue to sweep all cash flow to repay the loan. In the event of a default under the loan documents, the cash management
agreement further provides that the lender may sweep cash from all accounts maintained by the borrower with the lender (including rent accounts from the property). The estimated principal balance to be due at the anticipated repayment date is
$1,950,000.

In general, the mortgage loan may not be prepaid until the earlier of (a) three years or (b) two years after the
loan is sold into a securitization pool and the note cannot be retired or paid off except through a defeasance. In general, no sale, encumbrance or other transfer of an interest in the property is permitted without the lenders prior written
consent. Alex Gilbert, the managing member of 801 FO, LLC has guaranteed the non-recourse standard loan carve outs, and in exchange for his guarantee, Paladin Realty has agreed to fully indemnify Mr. Gilbert against any defaults caused by the
borrower through standard default provisions such as bankruptcy, fraud, misapplication of proceeds and certain environmental violations. The loan agreement obligation is secured by a mortgage on the Property and an assignment of rents and personal
property. In addition PRIP has entered into an environmental and hazardous substance indemnification agreement.

The agreements contain
various covenants, which among other things, limit the ability of the borrowers to incur indebtedness, engage in certain business activities, enter into material leases on the Property and transfer its interest in the Property among others. The loan
agreements also contain customary events of default, including, without limitation, payment defaults, cross-defaults to certain other agreements with respect to the Property and bankruptcy-related defaults. In the event of a default, the loan may be
accelerated and all amounts due under the loan will become immediately due and payable.

The following table summarizes on an unaudited pro
forma basis, the results of operations for the period ended March 31, 2005 and has been prepared to give effect as if the acquisition of the Property occurred on January 1, 2005. The unaudited pro forma results of operations was prepared
for informational purposes only and is not necessarily indicative of future results or of actual results that would have been achieved had the acquisition been consummated as of January 1, 2005.



|                                    |  |                |      
|----------------------------------- |  | -------------- | -----
|                                    |  | March 31, 2005
|Pro forma revenues                  |  | $              | 0    
|Pro forma net income                |  |                | 2,021
|Pro forma earnings per common share |  |                | 4.04 

Diluted income per common share has not been presented as there were no dilutive potential common shares for the
period ended March 31, 2005.



11



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



4.Shareholders Equity

Dividends

The board of directors has declared
dividends for the periods listed below to stockholders of record as the close of business each day during the applicable period and paid on the dates listed below.



|                                      |  |                             |   |  |                     
|------------------------------------- |  | --------------------------- | - |  | --------------------
|Period                                |  | Annualized RateDeclared (1) |   |  | Date Paid/To be Paid
|February 1, 2006 to February 28, 2006 |  | 6.0                         | % |  | March 15, 2006      
|March 31, 2006 to March 31, 2006      |  | 6.0                         | % |  | April 17, 2006      
|April 1, 2006 to April 30, 2006       |  | 6.0                         | % |  | May 15, 2006        



|(1) | Dividends were declared in the amount of $0.0016438 per share per day, representing an annualized rate of return of 6.0% on an investment of $10.00 per share if paid each day over a
365-day period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.Related Party Transactions

Paladin REIT is a party to an advisory agreement dated February 28, 2005, as amended and restated February 28, 2006, with Paladin Advisors which
entitles Paladin Advisors to specified fees upon the provision of certain services with regard to the Offering and investment of funds in real estate and real estate related investments, among other services, as well as reimbursement for
organization and offering costs incurred by Paladin Advisors on behalf of Paladin REIT (as discussed in Note 2) and certain costs incurred by Paladin Advisors and its affiliates in providing services to Paladin REIT.

Amounts due to Affiliate



|                                                                |  |                |           |                   |   |          
|--------------------------------------------------------------- |  | -------------- | --------- | ----------------- | - | ---------
|                                                                |  | March 31, 2006 |           | December 31, 2005
|General and administrative expenses due (from) to affiliate (1) |  |                | ($19,031) |                   | $ | 35,887   
|Organization and offering costs due to affiliate (2)            |  |                | 3,328     |                   |   | 51,134   
|Acquisition fees due to affiliate                               |  |                | 93,992    |                   |   | 93,992   
|                                                                |  |                |           |                   |   |          
|Total due to affiliate                                          |  | $              | 78,289    |                   | $ | 181,013  
|Deferred general and administrative expenses due to affiliate   |  | $              | 700,767   |                   | $ | 662,640  
|Deferred organization and offering costs due to affiliate       |  | $              | 3,223,729 |                   | $ | 3,038,095



|(1) | During the period ended March 31, 2006 Paladin REIT paid $64,060 of general and administrative expenses. Due to the application of the 2%/25% Rule (as discussed in Note 2),
Paladin REIT recognized $9,142 of general and administrative expenses in its condensed consolidated statement of operations with the remaining $54,918 recorded as due from affiliates. As of March 31, 2006, Paladin REIT had accrued $35,887 in
general and administrative expenses due to affiliate. The net balance of $19,031 in general and administrative expenses due from affiliate will be offset in the future as Paladin Advisors incurs additional general and administrative expenses on
behalf of Paladin REIT.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the three month period ended March 31, 2006, Paladin REIT paid $90,535 of offering costs. Due to the application of the 3% limitation (as discussed in
Note 2), Paladin REIT recognized $42,729 as a charge to stockholders equity with the remaining $47,806 recorded as due from affiliates. As of March 31, 2006, Paladin REIT had accrued $51,134 in organization
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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Paladin Realty Income Properties, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006 and 2005



| | and offering costs due to affiliate. Paladin Advisors has elected to defer (without interest) the net balance of $3,328 in organization and offering costs
due to affiliates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | Subsequent Events
|-- | -----------------

Sale of Common Shares

As of April 17, 2006, the Company has raised $3,331,958 in offering proceeds through the sale of 336,004 common shares in the
offering.

Declaration of Dividends

On April 24, 2006 the board of directors declared dividends for the month of May 2006 in the amount of a 6% annualized return on an investment of $10.00 per share to be paid on June 15, 2006. These dividends are payable to
stockholders of record at the close of business on each day during the period, commencing May 1, 2006 and continuing each day thereafter through and including May 31, 2006.



13



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements of Paladin Realty
Income Properties, Inc. and the notes thereto. As used herein, the terms we, our and us refer to Paladin Realty Income Properties Inc., a Maryland corporation, and, as required by context, Paladin Realty Income
Properties, L.P., which we refer to as Paladin OP.

Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and
Exchange Commission, or the SEC, contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our
business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Paladin Realty Income Properties,
Inc., which we refer to as Paladin REIT or the Company, and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as
may, will, seeks, anticipates, believes, estimates, expects, plans, intends, should or similar expressions. You should not place
undue reliance on these forward-looking statements. Statements regarding the following subjects are forward-looking by their nature:



| |  |  | our business strategy;
| | - |  | ----------------------



| |  |  | our projected operating results;
| | - |  | --------------------------------



| |  |  | our ability to obtain future financing arrangements;
| | - |  | ----------------------------------------------------



| |  |  | estimates relating to our future distributions;
| | - |  | -----------------------------------------------



| |  |  | our understanding of our competition;
| | - |  | -------------------------------------



| |  |  | market trends;
| | - |  | --------------



| |  |  | projected capital expenditures; and
| | - |  | -----------------------------------



| |  |  | use of the proceeds of our Offering.
| | - |  | ------------------------------------

The forward-looking
statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or
factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these
risks before you make an investment decision with respect to our common stock, along with the following factors that could cause actual results to vary from our forward-looking statements:



| |  |  | the factors referenced in our Annual Report on Form 10-K for the fiscal period ended December 31, 2005, including those set forth under the section captioned Item 1A.
Risk Factors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our business strategy;
| | - |  | ---------------------------------



| |  |  | availability, terms and deployment of capital;
| | - |  | ----------------------------------------------



| |  |  | availability of qualified personnel;
| | - |  | ------------------------------------



| |  |  | changes in our industry, interest rates or the general economy; and
| | - |  | -------------------------------------------------------------------



| |  |  | the degree and nature of our competition.
| | - |  | -----------------------------------------



14



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We believe these forward-looking statements are reasonable; however, undue reliance should not be placed
on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by these cautionary statements. Further,
forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating
results over time unless required by law.

Overview

The following Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Paladin Realty Income Properties, Inc., our
operations and our present business environment. MD&A is provided as a supplement toand should be read in conjunction withour condensed consolidated financial statements and the accompanying notes thereto contained in Item 1 of
this report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and timing of events could differ
materially from those anticipated in these forward-looking statements, as a result of a number of factors, including those factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and other
factors presented throughout this report.

We are a recently formed company that intends to invest in a diversified portfolio of real
estate properties, focusing primarily on properties that produce current income. In addition, we may make or acquire mortgage loans secured by, or preferred equity investments in entities that own, the same types of properties that we may acquire
directly, which we refer to collectively as real estate related investments. We intend to qualify as a real estate investment trust, or REIT, and to elect to be taxed as a REIT beginning with the taxable year ending December 31, 2006.

We plan to own substantially all of our assets and conduct our operations through Paladin Realty Income Properties, L.P., our operating
partnership. Our sole investment as of March 31, 2006 was an interest in 801 Fiber Optic Drive in the Central Arkansas I-440 Business Park in North Little Rock, Arkansas, which we hold through Paladin OPs 74% interest in PRIP 801, LLC. As
of the date of this Quarterly Report, we have also entered into a non-binding letter of intent with Buckingham Companies for the purchase of a 70% membership interest in a single-purpose limited liability company that owns Champion Farms Apartments
at 3700 Springhurst Boulevard in Louisville, Kentucky, which is described further in our Form 10-K for the fiscal year ended December 31, 2005.

On February 23, 2005, we commenced our initial public offering of 35,000,000 common shares of the Company, par value $0.01 per share to the public on a best efforts basis at a price of $10.00 per share. We also
registered up to 3,500,000 common shares under the Registration Statement to be issued during the offering pursuant to our dividend reinvestment plan at a price of $10.00 per share. On December 2, 2005, we reached our minimum offering by
receiving $1,246,670 in subscriptions, excluding subscriptions received from Pennsylvania investors. As of March 31, 2006, we had sold 316,137 shares of our common stock in the offering for aggregate gross proceeds of $3,133,756, including
shares purchased by Paladin Realty.

We intend to make an election to be taxed as a REIT under sections 856 through 860 of the Internal
Revenue Code, beginning with the taxable year ending December 31, 2006. If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail
to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and, if at such time we have previously qualified as a REIT, we will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following the year in which our qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially and adversely affect
our net income and net cash available for distribution to stockholders. However, we



15



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believe that we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes during the
year ending December 31, 2006, and thereafter we intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes.

Critical Accounting Policies

We believe our most critical accounting policies are the accounting for lease revenues
(including straight-line rent), the regular evaluation of whether the value of a real estate asset has been impaired and real estate purchase price allocations. Each of these items involves estimates that require management to make judgments that
are subjective in nature. We rely on our experience, we collect historical data and current market data, and we analyze these assumptions in order to arrive at what we believe to be reasonable estimates. Under different conditions or assumptions,
materially different amounts could be reported related to the accounting policies described below. In addition, application of these accounting policies involves the exercise of judgments on the use of assumptions as to future uncertainties and, as
a result, actual results could materially differ from these estimates.

Revenue Recognition and Collectibility of Related Receivables

Our revenue, which will be comprised largely of rental income, will include rents that tenants pay in accordance with the terms of
their respective leases reported on a straight-line basis over the initial term of the lease. Since our leases may provide for rental increases at specified intervals, straight-line basis accounting will require us to record as an asset, and include
in revenue, unbilled rent that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Accordingly, we must determine, in our judgment, to what extent the unbilled rent receivable
applicable to each specific tenant is collectible. We will review unbilled rent receivables on a quarterly basis and take into consideration the tenants payment history, the financial condition of the tenant, business conditions in the
industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectibility of unbilled rent with respect to any given tenant is in doubt, we would be required to record an
increase in our allowance for doubtful accounts or record a direct write-off of the specific rent receivable, which would have an adverse effect on our net income for the year in which the allowance is increased or the direct write-off is recorded
and would decrease our total assets and stockholders equity.

Investments in Real Estate

We will record investments in real estate at cost and will capitalize improvements and replacements when they extend the useful life or improve the
efficiency of the asset. We will expense costs of repairs and maintenance as incurred. We will compute depreciation using the straight-line method over the estimated useful lives of our real estate assets, which we expect will be approximately 40
years for buildings and improvements, three to seven years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

We will be required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to
record on an annual basis with respect to our investments in real estate. These assessments will have a direct impact on our net income because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate
these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

We will apply
Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which we refer to as SFAS 144, and which establishes a single accounting model for the impairment or disposal of
long-lived assets including discontinued operations. SFAS 144 requires that the operations related to properties that have been sold or that we intend to sell be presented as discontinued operations in the statement of income for all periods
presented, and properties we intend to sell be designated as held for sale on our balance sheet.



16



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When circumstances such as adverse market conditions indicate a possible impairment of the value of a
property, we will review the recoverability of the propertys carrying value. The review of recoverability will be based on our estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the
propertys use and eventual disposition. Our forecast of these cash flows will consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand,
competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property. We will
be required to make subjective assessments as to whether there are impairments in the values of our investments in real estate. We will evaluate the collectibility of both interest and principal related to any real estate related investments in
which we may invest. If circumstances indicate that such investment is impaired, we will reduce the carrying value of the investment to its net realizable value. Such reduction in value will be reflected as a charge to operations in the period in
which the determination is made.

Real Estate Purchase Price Allocation

We will allocate the purchase price of an acquired property to tangible assets (which includes land, buildings and tenant improvements) based on the
estimated fair values of those tangible assets assuming the building was vacant. We will record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) managements estimate of fair market lease rates for the corresponding in-place leases,
measured over a period equal to the remaining non-cancelable term of the lease. We will amortize any capitalized above-market lease values as a reduction of rental income over the remaining non-cancelable terms of the respective leases. We will
amortize any capitalized below-market lease values as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.

We will measure the aggregate value of other intangible assets acquired based on the difference between (1) the property valued with existing in-place leases adjusted to market rental rates and (2) the
property valued as if vacant. Our estimates of value are expected to be made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors we may consider in our analysis include an estimate of carrying
costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases. We will also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing
and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, we will also include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market
rates during the expected lease-up periods. We will also estimate costs to execute similar leases including leasing commissions, legal and other related expenses to the extent that such costs are not already incurred in connection with a new lease
origination as part of the transaction.

The total amount of other intangible assets acquired will be further allocated to in-place lease
values and customer relationship intangible values based on our evaluation of the specific characteristics of each tenants lease and our overall relationship with that respective tenant. Characteristics we will consider in allocating these
values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenants credit quality and expectations of lease renewals (including those existing
under the terms of the lease agreement), among other factors.

We will amortize the value of in-place leases to expense over the initial
term of the respective leases, which we would not expect to exceed 20 years. The value of customer relationship intangibles will be amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the
amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to
expense.

Joint Venture Investments

We will evaluate our joint venture investments in accordance with Financial Accounting Standards Board, Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which



17



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we refer to as FIN 46R. If we determine that the joint venture is a variable interest entity, or a VIE, and that we are the
primary beneficiary as defined in FIN 46R, we would account for such investment as if it were a consolidated subsidiary. For a joint venture investment which is not a VIE or in which we are not the primary beneficiary, we will consider
other relevant accounting literature including Accounting Principle Board Opinion 18The Equity Method of Accounting for Investments in Common Stock, Statement of Position 78-9Accounting for Investments in Real Estate Ventures, and
Emerging Issues Task Force Issue 04-5 to determine the method of accounting for each of our partially-owned entities. In accordance with the above pronouncements, we will determine whether we should consolidate the entity or account for it on the
equity method or cost method. Factors that we will consider in determining whether or not we exercise control include substantive participating rights of partners on significant business decisions, including dispositions and acquisitions of assets,
financing and operating and capital budgets, board and management representatives and authority and other contractual rights of our partners. To the extent that we are deemed to control these entities, these entities would be consolidated. We
account for the investment in PRIP 801 under the equity method of accounting as the other member has substantive participating rights as defined in EITF 04-5 and SOP 78-9. The investment is recorded initially at cost, and subsequently adjusted for
equity in earnings or losses and cash contributions and distributions.

On a periodic basis we will evaluate whether there are any
indicators that the value of our investments in partially-owned entities are impaired. An investment is impaired if our estimate of the value of the investment is less than the carrying amount. The ultimate realization of our investment in
partially-owned entities is dependent on a number of factors including the performance of that entity and market conditions. If we determine that a decline in the value of a partially-owned entity is other than temporary, then we would record an
impairment charge.

Results of Operations

Prior to acquiring an interest in 801 Fiber Optic Drive on November 2, 2005, we had not commenced any operations. In addition, we did not reach our minimum offering of at least $1,000,000 in shares until December 2, 2005, when we
received $1,246,670 in subscriptions for 127,690 shares, excluding subscriptions received from Pennsylvania investors. As of December 31, 2005, we had sold 173,527 shares in the offering for aggregate proceeds of $1,709,469 including shares
sold to Paladin Realty Partners, LLC. As a result, we had limited operations in 2005, and none prior to the effective date of our registration statement in February 2005. As of March 31, 2006, we had sold 316,137 shares in the offering for
aggregate proceeds of $3,133,756 including shares sold to Paladin Realty Partners, LLC.

We had net income of $10,726 for the three months
ended March 31, 2006 primarily relating to $20,271 of equity in earnings of PRIP 801 LLC and interest income of $2,103 offset by general and administrative expenses of $10,854. Net income for the three months ended March 31, 2005 related
solely to $2,883 of interest income.

Pursuant to the Advisory Agreement, Paladin Advisors is entitled to reimbursement of actual expenses
incurred for administrative and other services provided to us by Paladin Advisors and its affiliates for which they do not otherwise receive a fee. We will not reimburse Paladin Advisors for operating expenses that in the fiscal year then ended
exceeded the greater of (1) 2% of our average invested assets or (2) 25% of our net income (the 2%/25% Rule), and Paladin Advisors must reimburse us quarterly for any amounts by which our operating expenses exceed the 2%25% Rule in
the previous four consecutive fiscal quarters (the Expense Period).

Our average invested assets for any period are equal to
the average book value of our assets invested in equity interests in, and loans secured by, real estate before reserves for depreciation or bad debts or other similar non-cash reserves computed by taking the average of such values at the end of each
month during the period. Our net income for any period is equal to our total revenue less total expenses other than additions to reserves for depreciation, bad debts or other similar non-cash reserves for such period. Operating expenses include all
expenses incurred by us under GAAP (including the asset management fee), but excluding organization and offering expenses, selling commissions and dealer manager fees, interest payments, taxes, non-cash expenditures such as depreciation,
amortization and bad debt reserves, the



18



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subordinated disposition fee, acquisition and advisory fees and expenses and distributions pursuant to Paladin Advisors subordinated participation
interest in Paladin OP.

Paladin Advisors must reimburse the excess expenses to us within 60 days after the end of each fiscal quarter
unless the independent directors determine that the excess expenses were justified based on unusual and nonrecurring factors which they deem sufficient. Within 60 days after the end of any Expense Period for which total operating expenses exceed the
2%25% Rule, we will send our stockholders a written disclosure, together with an explanation of the factors the independent directors considered in arriving at the conclusion that the excess expenses were justified. However, at Paladin
Advisors option, Paladin Advisors or its affiliate, as applicable may defer receipt of any portion of the asset management fee or reimbursement of expenses and elect to receive such payments, without interest, in any subsequent fiscal year
that Paladin Advisors designates.

During the Expense Period ended December 31, 2005, our operating expenses including expenses
incurred on our behalf by Paladin Advisors and its affiliates exceeded the 2%/25% Rule by $626,753. During the Expense Period ended March 31, 2006, our operating expenses including expenses incurred on our behalf by Paladin Advisors and its
affiliates exceeded the 2%/25% Rule by $719,788. In accordance with the advisory agreement, Paladin Advisors has deferred payment of such amount and it was recorded as a reduction in general and administrative expenses and amounts due to affiliates.

As of March 31, 2006, Paladin Advisors and its affiliates had incurred $700,767 in general and administrative expenses on our behalf,
none of which are accrued on the condensed consolidated statement of operations for the three months ended March 31, 2006. As of March 31, 2006, Paladin Advisors was also entitled to acquisition and advisory fees of $93,992 and asset
management fees of $8,543 relating to the management of 801 Fiber Optic Drive. The acquisition and advisory fees were capitalized as part of our investment in 801 Fiber Optic Drive. Pursuant to the terms of the Advisory Agreement, Paladin Advisors
has elected to defer (without interest) receipt of all of these fees and expenses. During the three months ended March 31, 2005, we did not record any amounts for general and administrative expenses as all such expenses were paid by Paladin
Advisors and its affiliates.

As of March 31, 2006, Paladin Advisors had incurred on behalf of Paladin REIT organization and offering
costs of $3,223,729 on our behalf, none of which were recorded on the condensed consolidated statement of operations for the three months ended March 31, 2006, and $51,134 of which were recorded on the condensed consolidated statement of
operations for the year ended December 31, 2005. Pursuant to the advisory agreement, we are obligated to reimburse Paladin Advisors or its affiliates for amounts advanced for organization and offering costs, provided that Paladin Advisors and
its affiliates will be responsible for the payment of organization and offering expenses to the extent they exceed 3.0% of gross proceeds from the Offering and will be required to return to us any amount we reimburse them in excess of 3.0% of the
gross proceeds from the Offering. During the three months ended March 31, 2006, we paid $90,535 of offering costs. Due to the 3% limitation, however, we only recognized $42,729 of such costs, which were recorded as charges to stockholders
equity. The remaining $47,806 of offering costs are recorded as amounts due from affiliates on our condensed consolidated balance sheets. The remaining $3,220,401 in organization and offering costs will be recorded in future periods as we receive
additional proceeds of the offering.

For the three months ended March 31, 2006, our share of the equity in earnings of 801 Fiber
Optic Drive was $20,271.

The minority interest share of net income of $794 for the period ended March 31, 2006 and $2,813 for the
period ended March 31, 2005 relate to Paladin Realtys interest in Paladin OP.

Our results of operations for the three months
ended March 31, 2005 are not indicative of future performance due to the limited operations during that quarter. During the three months ended March 31, 2005, we had not reached our minimum offering or acquired any real estate or real
estate related investments. As a result, we had no results of operations for that period.



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Our management is not aware of any material trends or uncertainties, other than national economic
conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of real estate and real estate related investments.

Liquidity and Capital Resources

During the three months ended March 31, 2006, our source of funds were:



| |  |  | interest income of $2,103;
| | - |  | --------------------------



| |  |  | net proceeds of $1,248,357 from the sale of 142,610 common shares in our initial public offering; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | distributions from our investment in 801 Fiber Optic Drive of $20,586.
| | - |  | ----------------------------------------------------------------------

We are dependent upon the net proceeds to be received from the offering to conduct our proposed activities. The capital required to purchase real estate and real estate related investments will be obtained from the
offering and from any indebtedness that we may incur in connection with the acquisition of any real estate and real estate related investments thereafter. We anticipate our sources of funds will continue to primarily consist of the net proceeds of
the offering. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

Net cash used in operating activities for the three months ended March 31, 2006 were $190,719, primarily due to a $163,777 prepayment
of Directors and Officers liability insurance (D&O) expenses and a $54,918 decrease in due to affiliates. As described above, our organizational and offering expenses are limited to 3% of the gross offering proceeds of the
Offering, and amounts exceeding 3% are reimbursable to us by Paladin Advisors. In addition our operating expenses are limited by the 2%/25% Rule described above. For the period ended March 31, 2006, we paid $54,918 in excess of the 2%/25% Rule
and this amount has been recorded in due from affiliates on our condensed consolidated statements of cash flows.

Net cash used in
investing activities for the three month period ended March 31, 2006 of $20,208 included $40,794 in legal fees relating to our investment in 801 Fiber Optic Drive accrued as of December 31, 2005 and paid during the three months ended
March 31, 2006, less distributions of operating cash flow from that investment of $20,586.

Net cash provided by financing activities
for the three months ended March 31, 2006 were $1,169,154 and primarily related to $1,424,287 in proceeds from the issuance of common shares offset by $133,201 in selling commissions and dealer manager fees, $42,729 in offering costs, $47,806
in due to affiliates, $28,471 in dividends paid and $2,926 in distributions to minority interest.

We paid $28,471 in dividends during the
three months ended March 31, 2006. On January 25, 2006, the Paladin Realty Income Properties, Inc. board of directors declared dividends for the month of February 2006, which totaled $10,832 when paid in March 2006. On February 23,
2006, the Paladin Realty Income Properties, Inc. board of directors declared dividends for the month of March 2006, which totaled $15,462 when paid in April 2006. On March 24, 2006, the Paladin Realty Income Properties, Inc. board of directors
declared dividends for the month of April 2006, which will total $16,900 when paid in May 2006. These amounts are equal to $0.0016438 per share per day. This amount, if paid each day for a 365-day period, would equal a 6.0% annualized rate based on
a share price of $10.00.

These dividends were set by our board of directors at a level we believe to be appropriate based upon an
evaluation of our assets and liabilities, projected levels of cash flow, additional capital and debt



20



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anticipated to be raised or incurred and invested in the future and our projected results of operations. All dividends paid as of the date of this Quarterly
Report on Form 10-Q have been paid with distributions we received from our investment in 801 Fiber Optic Drive. However, after payments of such dividends, the funds remaining will not be sufficient to pay all of our general and administrative
expenses which are currently being funded by Paladin Advisors in the amounts discussed above. As of March 31, 2006, Paladin Advisors had incurred $3,223,729 in organization and offering expenses on behalf of Paladin REIT, none of which were
accrued on the condensed consolidated statement of operations for the three months ended March 31, 2006. In addition, as of March 31, 2006, Paladin Advisors and its affiliates had incurred $700,767 in general and administrative expenses on
our behalf, none of which were accrued on the condensed consolidated statement of operations for the three months ended March 31, 2006. As described above, Paladin Advisors must reimburse us quarterly for any amounts by which our operating
expenses exceed the 2%/25% Rule in any Expense Period. During the three months ended March 31, 2006, our operating expenses including expenses incurred on behalf of us by Paladin Advisors and its affiliates exceeded the 2%/25% Rule by $719,798.
In accordance with the advisory agreement, Paladin Advisors has deferred payment of such amount and it was recorded as a reduction in general and administrative expenses and asset management fees. See Note 5 to our condensed consolidated financial
statements. As of March 31, 2006, Paladin Advisors was also entitled to acquisition and advisory fees of $93,992 and asset management fees of $8,543 relating to 801 Fiber Optic Drive. The acquisition and advisory fees were capitalized as part
of our investment in 801 Fiber Optic Drive. Pursuant to the terms of the Advisory Agreement, Paladin Advisors has elected to defer (without interest) receipt of all of these fees and expenses including the amounts that are accrued on the condensed
consolidated statement of operations for the year ended December 31, 2005. We are obligated to pay these amounts to Paladin Advisors in the future, and the payment of this liability may impact our ability to pay future dividends. Paladin
Advisors is not obligated to either advance funds for the payment of our general and administrative expenses or defer reimbursements of such advances or fees in future periods. Paladin Advisors refusal to continue advancing funds for the
payment of our general and administrative expenses and/or refusal to continue deferring reimbursements of such advances or fees could have an adverse impact on our ability to pay dividends in future periods.

The amount of dividends to be distributed to our stockholders in the future will be determined by our board of directors and are dependent on a number of
factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements, annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code and any limitations
imposed by the terms of indebtedness we may incur and other factors.

As of March 31, 2006, the Company had no outstanding
indebtedness, and PRIP 801 had a $1,950,000 mortgage loan, the entire principal of which is due in 2010.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we
expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate
changes primarily as a result of borrowings used to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest
rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter
into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.

In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations
based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, and which may affect our ability to refinance our debt if necessary.



21



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|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

As of the end of the
period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the
evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file and submit
under the Exchange Act is recorded, processed, summarized and reported as and when required.

There have been no significant changes in our
internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies
or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.



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PART II - OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

None.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

On February 23, 2005, our initial public offering (SEC File No. 333-113863) was declared effective and we commenced our offering efforts. As of March 31, 2006, we had sold 316,137 shares of common stock
in the offering, raising gross offering proceeds of $3,133,756 including shares sold to Paladin Realty. From this amount, we have incurred approximately $274,024 in selling commissions and dealer manager fees to Prospect Financial Advisors, LLC,
approximately $3,314,265 in organization and offering costs, $93,992 in acquisition and advisory fees and $8,543 in asset management fees.

For information regarding how we used the net proceeds from our initial public offering (along with how we used cash from operating activities) through March 31, 2006, see our condensed consolidated statements of cash flows included in
this report and in our Annual Report on Form 10-K for the year ended December 31, 2005.

On March 21, 2006, we granted 3,000
restricted common shares to each of our four independent directors pursuant to our 2005 Independent Director Incentive Stock Plan in a private transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
One-third of the independent director restricted stock will vest on each of the first three anniversaries of December 2, 2005, the date that we reached our minimum offering.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

None.



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

None.



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None.



|ITEM 6. | EXHIBITS.
|------- | ---------



|            |  |                                                                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                           
|3.1         |  | Amended and Restated Articles of Incorporation of Paladin Realty Income Properties, Inc. (incorporated by reference to the registrants Form 10-Q for the period ending June 30,
2005)                                                                                                
|            | 
|3.2         |  | Bylaws of Paladin Realty Income Properties, Inc. (incorporated by reference to the registrants Form 10-Q for the period ending March 31, 2005)                                                                                                                                       
|            | 
|4.1         |  | Form of Subscription Agreement (incorporated by reference to the registrants Registration Statement on Form S-11 (File No. 333-113863))                                                                                                                                              
|            | 
|10.1        |  | Advisory Agreement between Paladin Realty Income Properties, Inc., Paladin Realty Income Properties, L.P. and Paladin Realty Advisors, LLC, dated February 28, 2006 (incorporated by reference
to Exhibit 10.2 of the registrants Annual Report on Form 10-K filed on March 28, 2006)
|            | 
|31.1        |  | Section 302 Certification of Principal Executive Officer                                                                                                                                                                                                                              
|            | 
|31.2        |  | Section 302 Certification of Principal Financial Officer                                                                                                                                                                                                                              
|            | 
|32.1        |  | Section 906 Certification of Principal Executive Officer                                                                                                                                                                                                                              
|            | 
|32.2        |  | Section 906 Certification of Principal Financial Officer                                                                                                                                                                                                                              



23



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |  |  |                                        |  |                    |  |                                                                                                                                        
|------------------ |  |  |  | -------------------------------------- |  | ------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------
|                   |  |  |  | PALADIN REALTY INCOME PROPERTIES, INC.
|                   |  |  | 
|Date: May 10, 2006 |  |  |  | By:                                    |  | /s/ James R. Worms
|                   |  |  |  |                                        |  |                    |  | James R. Worms                                                                                                                         
|                   |  |  |  |                                        |  |                    |  | President, Chief Executive Officer and Director (Principal Executive Officer)                                                          
|                   |  |  | 
|Date: May 10, 2006 |  |  |  | By:                                    |  | /s/ John A. Gerson
|                   |  |  |  |                                        |  |                    |  | John A. Gerson                                                                                                                         
|                   |  |  |  |                                        |  |                    |  | Executive Vice President, Chief Financial Officer and
Director (Duly Authorized Officer and Principal Financial and
Accounting Officer)



24



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                           
|3.1         |  | Amended and Restated Articles of Incorporation of Paladin Realty Income Properties, Inc. (incorporated by reference to the registrants Form 10-Q for the period ending June 30,
2005)                                                                                                
|            | 
|3.2         |  | Bylaws of Paladin Realty Income Properties, Inc. (incorporated by reference to the registrants Form 10-Q for the period ending March 31, 2005)                                                                                                                                       
|            | 
|4.1         |  | Form of Subscription Agreement (incorporated by reference to the registrants Registration Statement on Form S-11 (File No. 333-113863))                                                                                                                                              
|            | 
|10.1        |  | Advisory Agreement between Paladin Realty Income Properties, Inc., Paladin Realty Income Properties, L.P. and Paladin Realty Advisors, LLC, dated February 28, 2006 (incorporated by reference
to Exhibit 10.2 of the registrants Annual Report on Form 10-K filed on March 28, 2006)
|            | 
|31.1        |  | Section 302 Certification of Principal Executive Officer                                                                                                                                                                                                                              
|            | 
|31.2        |  | Section 302 Certification of Principal Financial Officer                                                                                                                                                                                                                              
|            | 
|32.1        |  | Section 906 Certification of Principal Executive Officer                                                                                                                                                                                                                              
|            | 
|32.2        |  | Section 906 Certification of Principal Financial Officer                                                                                                                                                                                                                              



25