FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
                        Quarterly or Transitional Report



                   U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

              For the quarterly period ended September 30, 2001


[ ]   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 0-14530


                      DAVIDSON INCOME REAL ESTATE, L.P.
      (Exact name of small business issuer as specified in its charter)



         Delaware                                           62-1242144
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)

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

                                 (864) 239-1000
                           (Issuer's telephone number)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  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 X No___



<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

a)

                      DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                       (in thousands, except unit data)

                               September 30, 2001

<TABLE>
<CAPTION>

Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $  455
   Receivables and deposits                                                     156
   Restricted escrows                                                           255
   Other assets                                                                 208
   Investment in joint venture                                                   20
   Investment properties:
       Land                                                  $ 4,120
       Buildings and related personal property                 22,695
                                                               26,815
       Less accumulated depreciation                          (13,850)       12,965
                                                                           $ 14,059
Liabilities and Partners' (Deficit) Capital
Liabilities
   Accounts payable                                                          $ 159
   Tenant security deposit liabilities                                           65
   Accrued property taxes                                                       270
   Other liabilities                                                            204
   Mortgage notes payable                                                    12,789

Partners' (Deficit) Capital
   General partners                                           $ (754)
   Limited partners (26,776 units issued and
      outstanding)                                              1,326           572
                                                                           $ 14,059

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

b)

                      DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                     (in thousands, except per unit data)

<TABLE>
<CAPTION>

                                       Three Months Ended        Nine Months Ended
                                         September 30,             September 30,
                                       2001          2000        2001        2000
Revenues:
<S>                                   <C>          <C>          <C>         <C>
  Rental income                       $ 1,195      $ 1,198      $ 3,525     $ 3,604
  Other income                             77           61          201         186
     Total revenues                     1,272        1,259        3,726       3,790

Expenses:
  Operating                               562          523        1,620       1,433
  General and administrative               59           87          177         191
  Depreciation                            264          264          803         762
  Interest                                261          244          780         736
  Property taxes                          110           98          354         289
     Total expenses                     1,256        1,216        3,734       3,411

Income (loss) before equity in income
  of joint venture                         16           43           (8)        379
Equity in income of joint venture          28           24           79          64

Net income                             $ 44          $ 67        $ 71        $ 443

Net income allocated to
  general partners (3%)                 $ 1          $ 2          $ 2        $ 13
Net income allocated to
  limited partners (97%)                   43           65           69         430

                                       $ 44          $ 67        $ 71        $ 443
Net income per limited
  partnership unit                    $ 1.61        $ 2.43      $ 2.58      $ 16.06

Distributions per limited
  partnership unit                    $ 4.59         $ --       $ 18.86     $ 40.41

         See Accompanying Notes to Consolidated Financial Statements
</TABLE>

<PAGE>

c)

                      DAVIDSON INCOME REAL ESTATE, L.P.

       CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
                                   (Unaudited)
                       (in thousands, except unit data)

<TABLE>
<CAPTION>


                                     Limited
                                   Partnership   General      Limited
                                      Units      Partners    Partners       Total

<S>                                   <C>          <C>        <C>          <C>
Original capital contributions        26,776       $ 1        $26,776      $26,777

Partners' (deficit) capital at
   December 31, 2000                  26,776      $ (740)     $ 1,762      $ 1,022

Distributions to partners                 --         (16)        (505)        (521)

Net income for the nine months
   ended September 30, 2001               --           2           69           71

Partners' (deficit) capital
   at September 30, 2001              26,776      $ (754)     $ 1,326       $ 572

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

d)

                      DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                 Nine Months Ended
                                                                   September 30,
                                                                  2001        2000
Cash flows from operating activities:
<S>                                                               <C>         <C>
  Net income                                                      $ 71        $ 443
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation                                                     803          762
   Amortization of discounts and loan costs                          49           58
   Equity in income of joint venture                                (79)         (64)
   Change in accounts:
      Receivables and deposits                                       43          163
      Other assets                                                  (23)         (40)
      Accounts payable                                               (9)         (19)
      Tenant security deposit liabilities                            (7)          (8)
      Accrued property taxes                                         (2)        (126)
      Other liabilities                                              (7)          30
       Net cash provided by operating activities                    839        1,199

Cash flows from investing activities:
  Property improvements and replacements                           (491)        (603)
  Net withdrawals from (deposits to) restricted escrows              21          (38)
  Distributions from joint venture                                  168           83
       Net cash used in investing activities                       (302)        (558)

Cash flows from financing activities:
  Payments on mortgage notes payable                               (123)        (116)
  Distributions to partners                                        (521)      (1,495)
  Loan cost paid                                                    (11)          --
       Net cash used in financing activities                       (655)      (1,611)

Net decrease in cash and cash equivalents                          (118)        (970)

Cash and cash equivalents at beginning of period                    573        1,675
Cash and cash equivalents at end of period                       $ 455        $ 705

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 718        $ 677

At  September  30,  2001,  approximately  $48,000 of property  improvements  and
replacements were included in accounts payable.

At December  31,  1999,  approximately  $243,000 of  property  improvements  and
replacements were included in accounts payable.

Distributions to partners of approximately $380,000 were accrued at December 31,
1999 and paid in January 2000.

         See Accompanying Notes to Consolidated Financial Statements
</TABLE>

<PAGE>

e)
                      DAVIDSON INCOME REAL ESTATE, L.P.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note A - Basis of Presentation

The accompanying  unaudited consolidated financial statements of Davidson Income
Real Estate,  L.P. (the  "Partnership"  or  "Registrant")  have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with the  instructions  to Form  10-QSB  and  Item  310(b)  of
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of Davidson Diversified  Properties,  Inc.
(the  "Managing  General  Partner"),   all  adjustments  (consisting  of  normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating  results for the three and nine months ended  September 30,
2001, are not necessarily indicative of the results that may be expected for the
fiscal year ending  December 31,  2001.  For further  information,  refer to the
consolidated   financial  statements  and  footnotes  thereto  included  in  the
Partnership's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2000. The Managing  General Partner is an affiliate of Apartment  Investment
and  Management  Company  ("AIMCO"),  a publicly  traded real estate  investment
trust.

Principles of Consolidation

The  consolidated  financial  statements of the  Partnership  include its 100%
ownership  interests in the following  partnerships:  Bexley  House,  L.P. and
Davidson IRE Associates,  L.P. All significant  interpartnership balances have
been eliminated.

Note B - Transactions with Affiliated Parties

The  Partnership  has no employees  and is  dependent  on the  Managing  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
Partnership  activities.  The Partnership Agreement provides for (i) payments to
affiliates for services and (ii)  reimbursement of certain expenses  incurred by
affiliates on behalf of the  Partnership.  The following  transactions  with the
Managing  General  Partner and/or its affiliates  were incurred  during the nine
months ended September 30, 2001 and 2000:

                                                                  2001      2000
                                                                  (in thousands)

 Property management fees (included in operating expenses)        $191      $191
 Reimbursement for services of affiliates (included in
   general and administrative expenses and investment
   properties)                                                     270       113

During the nine months  ended  September  30, 2001 and 2000,  affiliates  of the
Managing  General Partner were entitled to receive 5% of gross receipts from all
of  the  Partnership's   properties  as  compensation  for  providing   property
management  services.  The  Partnership  paid to such  affiliates  approximately
$191,000 for both the nine months ended September 30, 2001 and 2000.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $270,000 and
$113,000 for the nine months ended  September  30, 2001 and 2000,  respectively.
For the  nine  months  ended  September  30,  2001,  approximately  $163,000  of
construction  service  reimbursements are included in reimbursement for services
of affiliates.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,540 limited partnership units in
the Partnership  representing  43.10% of the outstanding  units at September 30,
2001. A number of these units were  acquired  pursuant to tender  offers made by
AIMCO or its  affiliates.  It is possible that AIMCO or its affiliates will make
one  or  more  additional  offers  to  acquire  additional  limited  partnership
interests in the  Partnership for cash or in exchange for units in the operating
partnership of AIMCO either through  private  purchases or tender offers.  Under
the  Partnership  Agreement,  unitholders  holding a  majority  of the Units are
entitled  to take  action  with  respect to a variety of  matters,  which  would
include voting on certain amendments to the Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 43.10% of
the  outstanding  units,  AIMCO is in a position  to  influence  all such voting
decisions with respect to the Registrant. When voting on matters, AIMCO would in
all likelihood vote the Units it acquired in a manner  favorable to the interest
of the Managing  General Partner  because of its  affiliation  with the Managing
General Partner.

Note C - Investment in Joint Venture

The  Partnership  owns a 17.5% interest in the Sterling Crest Joint Venture with
Davidson Growth Plus, L.P., an affiliate of the Managing General Partner,  which
owns the remaining  82.5% of the joint  venture.  In  connection  with the joint
venture's purchase of Phase I of Brighton Crest Apartments on June 30, 1987, the
Partnership  invested  approximately  $2,727,000 in the joint venture. The joint
venture purchased Phase II of Brighton Crest Apartments on December 15, 1987.

The Partnership  received  distributions of  approximately  $168,000 and $83,000
from the joint venture during the nine months ended September 30, 2001 and 2000,
respectively.  For the nine  months  ended  September  30,  2001 and  2000,  the
Partnership   recognized   equity  in  the  income  of  the  joint   venture  of
approximately $79,000 and $64,000, respectively.

Note D - Commitments and Contingencies

The Partnership  Agreement provides for payment of a fee to the Managing General
Partner for managing the affairs of the  Partnership.  The fee is 2% of adjusted
cash from  operations,  as  defined  in the  Partnership  Agreement.  The fee is
payable only after the Partnership  has  distributed,  to all limited  partners,
adjusted  cash  from  operations  in any year  equal  to 10% of  their  adjusted
invested capital as defined in the partnership  agreement.  No fees were payable
for the nine months ended September 30, 2001 and 2000.

Note E - Distributions

During the nine months ended  September  30,  2001,  the  Partnership  paid cash
distributions of approximately  $521,000 of which approximately $505,000 ($18.86
per  limited  partnership  unit)  was  paid  to  the  limited  partners.   These
distributions  consisted  of cash  from  operations  of  approximately  $454,000
(approximately   $440,000  to  the  limited   partners  or  $16.43  per  limited
partnership  unit)  and the  remaining  proceeds  from  the  refinancing  of the
mortgage   encumbering   Bexley  House  Apartments  of   approximately   $67,000
(approximately  $65,000 to the limited partners or $2.43 per limited partnership
unit).  In  January  2000,  the  Partnership  paid  a  cash   distribution  from
operations,   which  was  declared   and  accrued  at  December  31,  1999,   of
approximately $380,000 (approximately $369,000 to the limited partners or $13.78
per limited  partnership unit). During the nine months ended September 30, 2000,
the Partnership  declared and paid  distributions  of  approximately  $1,115,000
(approximately  $1,082,000  to  the  limited  partners  or  $40.41  per  limited
partnership unit) from operations.

Note F - Segment Information

Statement of Financial  Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
way that public business enterprises report information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information about operating segments in interim financial reports.  It
also established  standards for related disclosures about products and services,
geographic  areas,  and  major  customers.  As  defined  in SFAS  No.  131,  the
Partnership  has only one  reportable  segment.  The  Managing  General  Partner
believes that  segment-based  disclosures  will not result in a more  meaningful
presentation than the consolidated financial statements as currently presented.

Note G - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the  Partnership,  its Managing  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
purports  to  assert  claims  on  behalf  of a class  of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  which are named as nominal  defendants,  challenging,  among other
things,  the  acquisition of interests in certain  general  partner  entities by
Insignia  Financial  Group,  Inc.  ("Insignia")  and entities which were, at one
time,  affiliates of Insignia;  past tender offers by the Insignia affiliates to
acquire  limited  partnership  units;  management  of  the  partnerships  by the
Insignia  affiliates;  and the series of transactions which closed on October 1,
1998 and  February 26, 1999 whereby  Insignia  and  Insignia  Properties  Trust,
respectively,  were merged into AIMCO.  The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998,  the Managing  General  Partner  filed a motion  seeking  dismissal of the
action.  In lieu of responding to the motion,  the  plaintiffs  filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration.  On
October 5, 2001, the Managing General Partner and affiliated  defendants filed a
demurrer to the fourth amended complaint,  which, together with a demurrer filed
by other  defendants,  is currently  scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing  General  Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint.  The matters are currently  scheduled to be heard
on November 15, 2001.

The Managing  General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases will be  material  to the
Partnership's overall operations.

The  Partnership is unaware of any other pending or outstanding  litigation that
is not of a routine nature arising in the ordinary course of business.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The  matters  discussed  in this Form  10-QSB  contain  certain  forward-looking
statements  and  involve  risks and  uncertainties  (including  changing  market
conditions,   competitive  and  regulatory   matters,   etc.)  detailed  in  the
disclosures  contained  in this  Form  10-QSB  and the  other  filings  with the
Securities and Exchange  Commission made by the  Partnership  from time to time.
The  discussion  of  the  Partnership's  business  and  results  of  operations,
including  forward-looking  statements pertaining to such matters, does not take
into  account  the  effects of any  changes to the  Partnership's  business  and
results of operations.  Accordingly, actual results could differ materially from
those  projected in the  forward-looking  statements  as a result of a number of
factors, including those identified herein.

The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average  occupancy of the properties for the nine
months ended September 30, 2001 and 2000:

                                                   Average Occupancy
      Property                                      2001       2000

      Northsprings Apartments (1)                   90%        96%
         Atlanta, Georgia
      Lakeside Apartments (2)                       89%        92%
         Charlotte, North Carolina
      Bexley House Apartments (3)                   92%        95%
         Columbus, Ohio
      Covington Pointe Apartments                   91%        91%
         Dallas, Texas

(1)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Northsprings Apartments to a softening market in the area.

(2)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Lakeside  Apartments to an influx of new  apartment  units coming on line,
      low home mortgage interest rates and lay-offs in the area.

(3)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Bexley House Apartments to a change in demographics in the community.

Results of Operations

The  Partnership's  net income for the three and nine months ended September 30,
2001 was approximately $44,000 and $71,000 compared to approximately $67,000 and
$443,000 for the  corresponding  periods in 2000. The decrease in net income for
the three  months  ended  September  30, 2001 is  primarily  attributable  to an
increase in total expenses partially offset by an increase in total revenues and
the equity in income of the joint  venture.  The  decrease in net income for the
nine months ended September 30, 2001 is primarily  attributable to a decrease in
total revenues and an increase in total expenses partially offset by an increase
in the  equity  in income of the joint  venture.  Total  revenues  for the three
months ended  September  30, 2001  increased due to an increase in other income.
Other  income  increased  due to an increase in lease  cancellation  fees and in
tenant  reimbursements  partially offset by a decrease in interest income due to
lower average cash balances in interest bearing accounts. Total revenues for the
nine months  ended  September  30, 2001  decreased  as a result of a decrease in
rental  income  partially  offset by an  increase in other  income as  discussed
above.  Rental  income  decreased  due to a  decrease  in average  occupancy  at
Northsprings  Apartments,   Lakeside  Apartments  and  Bexley  House  Apartments
partially  offset  by an  increase  in  average  rental  rates  at  all  of  the
Partnership's properties.

Total expenses increased for the three months ended September 30, 2001 due to an
increase  in  operating  expense,  interest  expense  and  property  tax expense
partially  offset by a decrease in general  and  administrative  expense.  Total
expenses  increased  for the nine  months  ended  September  30,  2001 due to an
increase  in  operating  expense,  interest  expense,  property  tax expense and
depreciation   expense   partially   offset  by  a  decrease   in  general   and
administrative  expense.  Operating  expense  increased  for the  three and nine
months ended September 30, 2001 due to an increase in advertising,  property and
insurance  expenses.  Advertising  expense  increased due to efforts to increase
occupancy at Bexley  House  Apartments,  Lakeside  Apartments  and  Northsprings
Apartments.  Property  expense  increased due to an increase in employee related
expense  at all of  the  Partnership's  investment  properties  and to  contract
courtesy patrol at Northsprings  Apartments and Lakeside  Apartments.  Insurance
expense  increased due to an increase in insurance  premiums at all  properties.
Interest  expense  increased  for the three and nine months ended  September 30,
2001 due to the refinancing of the mortgage  encumbering Bexley House Apartments
in  December of 2000.  Property  tax  expense  increased  for the three and nine
months  ending  September  30, 2001 due to an increase in the assessed  value at
Covington Pointe  Apartments and  Northsprings  Apartments and to an increase in
the tax rate at Bexley House Apartments.  Depreciation  expense increase for the
nine months ended  September  30, 2001 due to new assets being placed in service
during the past twelve months.  Depreciation  expense remained  constant for the
three months ended September 30, 2001 and 2000.

General  and  administrative  expenses  decreased  for the three and nine months
ended  2001,  primarily  due  to a  decrease  in the  cost  of  services  in the
management  reimbursements  to the Managing General Partner as allowed under the
Partnership Agreement.  Also included in general and administrative expense were
costs associated with the quarterly and annual communications with the investors
and  regulatory  agencies  and the  annual  audit  required  by the  Partnership
Agreement.

For the three and nine months ended September 30, 2001, there was an increase in
equity in income of the joint venture  property.  The  Partnership  owns a 17.5%
interest in Sterling Crest Joint Venture (the "Joint Venture"). Equity in income
from the joint venture  increased  primarily due to increased  rental revenue at
the  Joint  Venture's  investment  property,  Brighton  Crest.  Rental  revenues
increased due to increased average rental rates.

As part of the ongoing  business plan of the  Partnership,  the Managing General
Partner  monitors  the  rental  market  environment  of each  of its  investment
properties  to assess  the  feasibility  of  increasing  rents,  maintaining  or
increasing  occupancy  levels and protecting the  Partnership  from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Partnership  from the burden of  inflation-related  increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market  conditions,  which can result in the use of rental  concessions
and  rental  reductions  to  offset  softening  market  conditions,  there is no
guarantee that the Managing General Partner will be able to sustain such a plan.

Liquidity and Capital Resources

At  September  30,  2001,  the  Partnership  had cash and  cash  equivalents  of
approximately $455,000 compared to approximately $705,000 at September 30, 2000.
The decrease in cash and cash  equivalents  for the nine months ended  September
30, 2001 from the Partnership's  year ended December 31, 2000, was approximately
$118,000.  This  decrease  is due to  approximately  $655,000  of  cash  used in
financing  activities  and  approximately  $302,000  of cash  used in  investing
activities  largely  offset  by  approximately  $839,000  of  cash  provided  by
operating  activities.  Cash used in financing activities consisted primarily of
distributions paid to the partners,  payments of principal made on the mortgages
encumbering  the  Partnership's  investment  properties and, to a lesser extent,
additional  loan costs paid in  relation  to the  refinancing  of the  mortgages
encumbering Bexley House Apartments,  as discussed below. Cash used in investing
activities consisted of property improvements and replacements  partially offset
by net withdrawals  from restricted  escrows  maintained by the mortgage lenders
and distributions received from the Partnership's joint venture. The Partnership
invests its working capital reserves in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the investment  properties to adequately  maintain the
physical  assets and other operating needs of the Partnership and to comply with
Federal,   state,   and  local  legal  and  regulatory   requirements.   Capital
improvements planned for the Partnership's properties are detailed below.

Northsprings Apartments

Approximately  $79,000 is budgeted for capital improvements for the year 2001 at
Northsprings Apartments consisting primarily of floor covering replacement, wall
covering replacement,  and appliance replacements.  During the nine months ended
September 30, 2001, the Partnership completed approximately $118,000 of budgeted
and nonbudgeted  capital  improvements at  Northsprings  Apartments,  consisting
primarily of cabinet  replacements,  wall coverings,  plumbing fixture upgrades,
parking area resurfacing,  and appliance and floor covering replacements.  These
improvements were funded from operating cash flow.

Lakeside Apartments

Approximately $159,000 is budgeted for capital improvements for the year 2001 at
Lakeside Apartments  consisting primarily of floor covering  replacement,  major
landscaping,  wall covering  replacement,  air conditioning  unit  replacements,
appliance  replacements,  and other  structural  improvements.  During  the nine
months  ended  September  30,  2001,  the  Partnership  completed  approximately
$208,000  of  budgeted  and   nonbudgeted   capital   improvements  at  Lakeside
Apartments,   consisting  primarily  of  floor  covering   replacements,   major
landscaping,  appliance  replacements,  plumbing fixture  upgrades,  submetering
equipment,  HVAC replacements and structural  improvements.  These  improvements
were funded from replacement reserves and operating cash flow.

Bexley House Apartments

Approximately  $79,000 is budgeted for capital improvements for the year 2001 at
Bexley House  Apartments  consisting  primarily of floor covering  replacements,
HVAC upgrades and appliance replacements. During the nine months ended September
30, 2001, the Partnership  completed  approximately  $99,000 of budgeted capital
improvements  at Bexley House,  consisting  primarily of maintenance  equipment,
HVAC upgrades and floor covering  replacements.  These  improvements were funded
from replacement reserves and operating cash flow.

Covington Pointe Apartments

Approximately $118,000 is budgeted for capital improvements for the year 2001 at
Covington Pointe Apartments consisting primarily of floor covering replacements,
interior decoration, HVAC replacements,  and appliance replacements.  During the
nine months ended  September 30, 2001, the Partnership  completed  approximately
$114,000  of budgeted  capital  improvements  at  Covington  Pointe  Apartments,
consisting primarily of appliance and floor covering replacements,  parking area
improvements, interior decoration and HVAC replacements. These improvements were
funded primarily from operating cash flow.

The additional  capital  expenditures will be incurred only if cash is available
from operations or from Partnership  reserves.  To the extent that such budgeted
capital improvements are completed,  the Partnership's  distributable cash flow,
if any, may be adversely affected at least in the short term.

On December 15, 2000, the Partnership refinanced the mortgage encumbering Bexley
House   Apartments.   The   refinancing   replaced   mortgage   indebtedness  of
approximately  $1,205,000  with a new mortgage of  $2,425,000.  The mortgage was
refinanced at a rate of 7.32%,  as compared to the prior rate of 7.60%,  and the
new mortgage  matures on January 1, 2021. The  Partnership  was also required to
establish  a  repair  escrow  of  approximately  $96,000  at  the  date  of  the
refinancing.   As  of  September   30,  2001  this  reserve   account   contains
approximately $97,000.  Capitalized loan costs incurred for the refinancing were
approximately  $38,000 as of December  31,  2000.  During the nine months  ended
September  30,  2001,  the  Partnership   incurred   additional  loan  costs  of
approximately $11,000.

The Partnership's  current assets are thought to be sufficient for any near-term
needs  (exclusive  of capital  improvements)  of the  Partnership.  The mortgage
indebtedness of approximately  $12,789,000,  net of discounts, is amortized over
varying  periods.  The Managing General Partner will attempt to refinance and/or
sell the properties  prior to such maturity dates.  If the properties  cannot be
refinanced or sold for a sufficient amount, the Partnership may risk losing such
properties through foreclosure.

During the nine months ended  September  30,  2001,  the  Partnership  paid cash
distributions of approximately  $521,000 of which approximately $505,000 ($18.86
per  limited  partnership  unit)  was  paid  to  the  limited  partners.   These
distributions  consisted  of cash  from  operations  of  approximately  $454,000
(approximately   $440,000  to  the  limited   partners  or  $16.43  per  limited
partnership  unit)  and the  remaining  proceeds  from  the  refinancing  of the
mortgage   encumbering   Bexley  House  Apartments  of   approximately   $67,000
(approximately  $65,000 to the limited partners or $2.43 per limited partnership
unit).  In  January  2000,  the  Partnership  paid  a  cash   distribution  from
operations,   which  was  declared   and  accrued  at  December  31,  1999,   of
approximately $380,000 (approximately $369,000 to the limited partners or $13.78
per limited  partnership unit). During the nine months ended September 30, 2000,
the Partnership  declared and paid  distributions  of  approximately  $1,115,000
(approximately  $1,082,000  to  the  limited  partners  or  $40.41  per  limited
partnership  unit) from operations.  The  Partnership's  distribution  policy is
reviewed on a monthly basis. Future cash distributions will depend on the levels
of net cash generated from operations,  the  availability of cash reserves,  and
the timing of debt maturities,  refinancings and/or property sales. There can be
no assurance,  however, that the Partnership will generate sufficient funds from
operations after required capital  improvements to permit further  distributions
to  its  partners   during  the  remainder  of  2001  or   subsequent   periods.
Distributions  may be  restricted  by the  requirement  to deposit net operating
income into a reserve account until it is funded a minimum of $200 and a maximum
of $400 per apartment  unit at  Northsprings  Apartments  and  Covington  Pointe
Apartments for a total of  approximately  $60,000 to $120,000.  At September 30,
2001, the maximum balance was attained.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,540 limited partnership units in
the Partnership  representing  43.10% of the outstanding  units at September 30,
2001. A number of these units were  acquired  pursuant to tender  offers made by
AIMCO or its  affiliates.  It is possible that AIMCO or its affiliates will make
one  or  more  additional  offers  to  acquire  additional  limited  partnership
interests in the  Partnership for cash or in exchange for units in the operating
partnership of AIMCO either through  private  purchases or tender offers.  Under
the  Partnership  Agreement,  unitholders  holding a  majority  of the Units are
entitled  to take  action  with  respect to a variety of  matters,  which  would
include voting on certain amendments to the Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 43.10% of
the  outstanding  units,  AIMCO is in a position  to  influence  all such voting
decisions with respect to the Registrant. When voting on matters, AIMCO would in
all likelihood vote the Units it acquired in a manner  favorable to the interest
of the Managing  General Partner  because of its  affiliation  with the Managing
General Partner.
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the  Partnership,  its Managing  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
purports  to  assert  claims  on  behalf  of a class  of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  which are named as nominal  defendants,  challenging,  among other
things,  the  acquisition of interests in certain  general  partner  entities by
Insignia  Financial  Group,  Inc.  ("Insignia")  and entities which were, at one
time,  affiliates of Insignia;  past tender offers by the Insignia affiliates to
acquire  limited  partnership  units;  management  of  the  partnerships  by the
Insignia  affiliates;  and the series of transactions which closed on October 1,
1998 and  February 26, 1999 whereby  Insignia  and  Insignia  Properties  Trust,
respectively,  were merged into AIMCO.  The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998,  the Managing  General  Partner  filed a motion  seeking  dismissal of the
action.  In lieu of responding to the motion,  the  plaintiffs  filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration.  On
October 5, 2001, the Managing General Partner and affiliated  defendants filed a
demurrer to the fourth amended complaint,  which, together with a demurrer filed
by other  defendants,  is currently  scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing  General  Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint.  The matters are currently  scheduled to be heard
on November 15, 2001.

The Managing  General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases will be  material  to the
Partnership's overall operations.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a)    Exhibits:

                  None.

            b)    Reports on Form 8-K:

                  None filed during the quarter ended September 30, 2001.

<PAGE>

                                   SIGNATURES



In accordance with the  requirements of the Exchange Act, the Registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.



                                    DAVIDSON INCOME REAL ESTATE, L.P.


                                    By:   DAVIDSON DIVERSIFIED PROPERTIES, INC.
                                          Managing General Partner


                                    By:   /s/Patrick J. Foye
                                          Patrick J. Foye
                                          Executive Vice President


                                    By:   /s/Martha L. Long
                                          Martha L. Long
                                          Senior Vice President
                                          and Controller


                                    Date: