UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



Form 10-QSB



(Mark One)

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934



For the quarterly period endedMarch 31, 2006





[ ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT



For the transition period from __________ to __________



Commission file number 0-10673





REAL ESTATE ASSOCIATES LIMITED III

(Exact Name of Small Business Issuer as Specified in Its Charter)



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



55 Beattie Place, PO Box 1089

Greenville, South Carolina  29602

(Address of principal executive offices)



(864) 239-1000

(Issuers telephone number)





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



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











PART I - FINANCIAL INFORMATION





ITEM 1.

FINANCIAL STATEMENTS





REAL ESTATE ASSOCIATES LIMITED III

BALANCE SHEET

(Unaudited)

(in thousands)



March 31, 2006







|                                                    |       |        
|--------------------------------------------------- | ----- | -------
|ASSETS                                              |       |        
|                                                    |       |        
|Investment in local partnerships (Note 2)           |       | $   102
|Cash and cash equivalents                           |       | 971    
|Receivable  limited partners                       |       | 8      
|                                                    |       |        
|Total assets                                        |       | $1,081 
|                                                    |       |        
|LIABILITIES AND PARTNERS' (DEFICIENCY) EQUITY       |       |        
|                                                    |       |        
|Liabilities:                                        |       |        
|Accounts payable and accrued expenses               |       | $    22
|                                                    |       |        
|Contingencies (Note 4)                              |       |        
|                                                    |       |        
|Partners' (deficiency) equity:                      |       |        
|General partners                                    | (144) |        
|Limited partners                                    | 1,203 | 1,059  
|                                                    |       |        
|Total liabilities and partners' (deficiency) equity |       | $1,081 





See Accompanying Notes to Financial Statements















REAL ESTATE ASSOCIATES LIMITED III



STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per interest data)













|                                                   |                    |         
|-------------------------------------------------- | ------------------ | --------
|                                                   | Three Months Ended
|                                                   | March 31,         
|                                                   | 2006               | 2005    
|Revenues:                                          |                    |         
|Interest income                                    | $    11            | $     4 
|                                                   |                    |         
|Operating expenses:                                |                    |         
|Management fees - partners (Note 3)                | 19                 | 29      
|General and administrative (Note 3)                | 4                  | 13      
|Legal and accounting                               | 17                 | 15      
|Total operating expenses                           | 40                 | 57      
|                                                   |                    |         
|Net loss                                           | $(29)              | $(53)   
|                                                   |                    |         
|Net loss allocated to general partners (1%)        | $    --            | $    (1)
|Net loss allocated to limited partners (99%)       | (29)               | (52)    
|                                                   | $(29)              | $(53)   
|                                                   |                    |         
|Net loss per limited partnership interest (Note 1) | $(2.54)            | $(4.55) 





See Accompanying Notes to Financial Statements











REAL ESTATE ASSOCIATES LIMITED III



STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) EQUITY

(Unaudited)

(in thousands, except interest data)







|                               |          |          |        
|------------------------------ | -------- | -------- | -------
|                               | General  | Limited  |        
|                               | Partners | Partners | Total  
|                               |          |          |        
|Partnership interests (A)      |          | 11,430   |        
|                               |          |          |        
|Partners' (deficiency) equity, |          |          |        
|December 31, 2005              | $ (144)  | $ 1,232  | $ 1,088
|                               |          |          |        
|Net loss for the three months  |          |          |        
|ended March 31, 2006           | --       | (29)     | (29)   
|                               |          |          |        
|Partners' (deficiency) equity, |          |          |        
|March 31, 2006                 | $(144)   | $1,203   | $1,059 
|                               |          |          |        
|Percentage interest at         |          |          |        
|March 31, 2006                 | 1%       | 99%      | 100%   







(A)

Consists of 5,715 limited partnership units (the Units) (or 11,430 limited partnership interests) at March 31, 2006 and December 31, 2005. A Unit consists of two limited partnership interests.



See Accompanying Notes to Financial Statements











REAL ESTATE ASSOCIATES LIMITED III



STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)







|                                                  |                    |         
|------------------------------------------------- | ------------------ | --------
|                                                  | Three Months Ended
|                                                  | March 31,         
|                                                  | 2006               | 2005    
|Cash flow from operating activities:              |                    |         
|Net loss                                          | $   (29)           | $   (53)
|Adjustments to reconcile net loss to net cash     |                    |         
|used in operating activities:                     |                    |         
|Decrease in accrued fees due to partners          | (2)                | --      
|Decrease in accounts payable and accrued expenses | (35)               | (6)     
|Net cash used in operating activities             | (66)               | (59)    
|                                                  |                    |         
|Net decrease in cash and cash equivalents         | (66)               | (59)    
|                                                  |                    |         
|Cash and cash equivalents, beginning of period    | 1,037              | 969     
|                                                  |                    |         
|Cash and cash equivalents, end of period          | $971               | $910    



See Accompanying Notes to Financial Statements















REAL ESTATE ASSOCIATES LIMITED III



NOTES TO FINANCIAL STATEMENTS

(Unaudited)

MARCH 31, 2006



Note 1  Organization and Summary of Significant Accounting Policies



General



The information contained in the following notes to the unaudited financial statements is condensed from that which would appear in the annual audited financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the annual report for the fiscal year ended December 31, 2005 prepared by Real Estate Associates Limited III (the "Partnership" or "Registrant"). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end.  The results of operations for the interim periods presented are not necessarily indicative of the results expected for the entire year.



In the opinion of the Partnerships management, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2006 and the results of operations and changes in cash flows for the three months ended March 31, 2006 and 2005, respectively.



The general partners collectively have a one percent interest in profits and losses of the Partnership.  The limited partners have the remaining 99 percent interest which is allocated in proportion to their respective individual investments.  The general partners of the Partnership are National Partnership Investments Corporation ("NAPICO" or the "Corporate General Partner") and National Partnership Investment Associates (NAPIA). The Corporate General Partner is a subsidiary of Apartment Investment and Management Company (AIMCO), a publicly traded real estate investment trust.



Basis of Presentation



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



Method of Accounting for Investment in Local Partnerships



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



Net Loss Per Limited Partnership Interest



Net loss per limited partnership interest was computed by dividing the limited partners share of net loss by the number of limited partnership interests outstanding at the beginning of the period.  The number of limited partnership interests was 11,430 at December 31, 2005 and 2004.



FASB Interpretation No. 46



As of December 31, 2004, the Partnership adopted FASB Interpretation No. 46 Consolidation of Variable Interest Entities (or FIN 46) and applied its requirements to all Local Partnerships in which the Partnership held a variable interest.  FIN 46 addresses the consolidation by business enterprises of variable interest entities.  Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics:  (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional















subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entitys activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entitys activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.  FIN 46 requires a VIE to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE.



Upon adoption of FIN 46, the Partnership determined it held variable interests in nine VIEs for which the Partnership was not the primary beneficiary.  During the year ended December 31, 2005, one Local Limited Partnership previously determined to be a VIE sold its investment property, consisting of 553 units. The remaining eight VIEs consist of Local Partnerships in which the Partnership acquired an interest prior to the adoption of FIN 46 that are directly engaged in the ownership and management of eight apartment properties with a total of 541 units.  The Partnership is involved with those VIEs as a non-controlling limited partner equity holder. As of March 31, 2006, the Partnership continued to hold variable interests in eight of the same nine VIEs as determined upon adoption of FIN 46. The Partnerships maximum exposure to loss as a result of its involvement with unconsolidated VIEs is limited to the Partnerships recorded investments in and receivables from those VIEs, which was approximately $102,000 at March 31, 2006.  The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.



Recent Accounting Pronouncement



In May 2005, the Financial Accounting Standards Board issued SFAS No. 154 Accounting Changes and Error Corrections, which replaces APB Opinion No. 20 and SFAS No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Partnership adopted SFAS No. 154 effective January 1, 2006. The adoption of SFAS No. 154 did not have a material effect on the Partnerships financial condition or results of operations.



Note 2  Investments in Local Partnerships



As of March 31, 2006, the Partnership holds limited partnership interests in eight Local Partnerships. In addition, the Partnership holds a general partner interest in Real Estate Associates (REA). NAPICO is also a general partner in REA. The Local Partnerships own residential low income rental projects consisting of 541 apartment units.  The mortgage loans of these projects are payable to or insured by various governmental agencies.



The Partnership, as a limited partner, does not exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 94% and 99%). The Partnership is also entitled to 99% of the profits and losses of REA.  Distributions of surplus cash from operations from most of the Local Partnerships are restricted by the Local Partnerships Regulatory Agreements with the United States Department of Housing and Urban Development (HUD). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the















Local Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships partnership agreements. These agreements usually limit the Partnerships distributions to an amount substantially less than its ownership percentage in the Local Partnership.



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



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



At March 31, 2006, the investment balance in seven of the eight Local Partnerships had been reduced to zero.



The following is a summary of the investment in Local Partnerships for the three months ended March 31, 2006 (in thousands):



|                                       |      
|-------------------------------------- | -----
|Balance, beginning of period           | $ 102
|Amortization of acquisition costs      | (1)  
|Equity in income of Local Partnerships | 1    
|Balance, end of period                 | $102 



The following are unaudited combined estimated statements of operations for the three months ended March 31, 2006 and 2005 for the Local Partnerships in which the Partnership has invested (in thousands):



|                                  |                    |           
|--------------------------------- | ------------------ | ----------
|                                  | Three Months Ended
|                                  | March 31,         
|                                  | 2006               | 2005      
|                                  |                    | (restated)
|Rental and other income           | $   933            | $   902   
|                                  |                    |           
|Expenses:                         |                    |           
|Operating expenses                | 485                | 463       
|Financial expenses                | 262                | 283       
|Depreciation                      | 148                | 145       
|                                  | 895                | 891       
|Income from continuing operations | $38                | $11       











In accordance with Statement of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, the results of Charlotte Lakes have been excluded from the condensed combined results of operations for the quarter ended March 31, 2005 due to the sale of the Partnerships interest in the Local Partnership during 2005.



In addition to being the Corporate General Partner of the Partnership, NAPICO, or one of its affiliates is the local operating general partner for two of the Local Partnerships included above.



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



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



300 Broadway Associates  Jenks School Apartments



The Local Operating General Partner for 300 Broadway Associates has made an offer to the Partnership to purchase the Partnerships limited partnership interest in the Local Partnership. The request is currently under consideration by the Partnership. The Partnership has an investment balance of approximately $102,000 in the Local Partnership at March 31, 2006.



Note 3  Transactions with Affiliated Parties



Under the terms of the Restated Certificate and Agreement of Limited Partners, the Partnership is obligated to NAPICO for an annual management fee equal to 0.4 percent of the original invested assets of the limited partnerships and is calculated at the beginning of the year. Invested assets are defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective Local Partnerships.















The management fee incurred for the three months ended March 31, 2006 and 2005 was approximately $19,000 and $29,000, respectively.



The Partnership reimburses NAPICO for certain expenses.  The reimbursement paid to NAPICO was approximately $4,000 for the three month period ended March 31, 2005. No such fees were accrued or paid for the three months ended March 31, 2006.



Note 4 - Contingencies



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















ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



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



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



Liquidity and Capital Resources



The Partnership's primary sources of funds include interest income earned from investing available cash and the receipt of distributions from the Local Partnerships in which the Partnership has invested. It is not expected that any of the Local Partnerships in which the Partnership has invested will generate cash flow from operations sufficient to provide for distributions to the Partnership's limited partners in any material amount.  An infrequent source of funds would be funds received by the Partnership as its share of any proceeds from the sale of a property owned by a Local Partnership or the Partnerships sale of its interest in a Local Partnership.



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



As of March 31, 2006, the Partnership had cash and cash equivalents of approximately $971,000. Cash and cash equivalents are on deposit with a financial institution earning interest at market rates.  Interest income earned during the three months ended March 31, 2006 and 2005 was approximately $11,000 and $4,000, respectively.  The amount of interest income varies with market rates available on deposits and with the amount of funds available for investment.  Cash equivalents can be converted to cash to meet obligations of the Partnership as they arise.  The Partnership intends to continue investing available funds in this manner.



Results of Operations



At March 31, 2006, the Partnership has investments in eight Local Partnerships, all of which own housing projects that were substantially rented. The Partnership, as a limited partner, does not exercise control over the activities and operations, including refinancing or selling decisions of the Local Partnerships. Accordingly, the Partnership accounts for its investment in the Local Partnerships using the equity method.  Thus the individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges.  However, since the Partnership is not legally liable for the obligations of the Local Partnerships, or is not otherwise committed to provide additional support to them, it does not recognize losses once its investment in each of the Local Partnerships reaches zero.















Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero.  Subsequent distributions received are recognized as income in the accompanying statements of operations.  For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received, and amortization of acquisition costs from those Local Partnerships.  Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize. The Partnership did not recognize any equity in income or loss from Local Partnerships during the three months ended March 31, 2006 or 2005.  The Partnership did not receive any distributions from Local Partnerships during the three months ended March 31, 2006 or 2005.



At March 31, 2006, the investment balance in seven of the eight Local Partnerships had been reduced to zero.



Partnership revenues consist primarily of interest income earned on temporary investment of funds not required for investment in Local Partnerships.  The increase in interest income for the three months ended March 31, 2006, is due to an increase in interest rates and the amount of cash available for investment.



An annual management fee is payable to the Corporate General Partner of the Partnership and is calculated at 0.4 percent of the Partnership's original remaining invested assets at the beginning of each year.  The management fee is paid to the Corporate General Partner for its continuing management of the Partnership's affairs. The fee is payable beginning with the month following the Partnership's initial investment in a Local Partnership. Management fees were approximately $19,000 and $29,000 for the three months ended March 31, 2006 and 2005, respectively. The decrease in annual management fees is a result of the sale of one of the Local Partnerships during 2005.



Operating expenses, exclusive of the management fee, consist of legal and accounting fees for services rendered to the Partnership and general and administrative expenses. Legal and accounting fees were approximately $17,000 and $15,000 for the three months ended March 31, 2006 and 2005, respectively. General and administrative expenses were approximately $4,000 and $13,000 for the three months ended March 31, 2006 and 2005, respectively.  General and administrative expenses decreased due to taxes paid during the three months ended March 31, 2005.



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

















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



Other



AIMCO and its affiliates owned 492 limited partnership units (the "Units") (or 984 limited partnership interests) in the Partnership representing 8.61% of the outstanding Units as of March 31, 2006.  A Unit consists of two limited partnership interests. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as corporate general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO as its sole stockholder.



Critical Accounting Policies and Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. Judgments and assessments of uncertainties are required in applying the Partnerships accounting policies in many areas.   The following may involve a higher degree of judgment and complexity.



Method of Accounting for Investments in Local Partnerships



The Partnership, as a limited partner, does not exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 94% and 99%). The Partnership is also entitled to 99% of the profits and losses of REA.  Distributions of surplus cash from operations from most of the Local Partnerships are restricted by the Local Partnerships Regulatory Agreements with the United States Department of Housing and Urban Development (HUD). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships partnership agreements. These agreements usually limit the Partnerships distributions to an amount substantially less than its ownership percentage in the Local Partnership.



The individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Partnerships reaches zero.  Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been















reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations.



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



FASB Interpretation No. 46



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



Upon adoption of FIN 46, the Partnership determined it held variable interests in nine VIEs for which the Partnership was not the primary beneficiary.  During the year ended December 31, 2005, one Local Limited Partnership previously determined to be a VIE sold its investment property, consisting of 553 units. The remaining eight VIEs consist of Local Partnerships in which the Partnership acquired an interest prior to the adoption of FIN 46 that are directly engaged in the ownership and management of eight apartment properties with a total of 541 units.  The Partnership is involved with those VIEs as a non-controlling limited partner equity holder. As of March 31, 2006, the Partnership continued to hold variable interests in eight of the same nine VIEs as determined upon adoption of FIN 46. The Partnerships maximum exposure to loss as a result of its involvement with unconsolidated VIEs is limited to the Partnerships recorded investments in and receivables from those VIEs, which was approximately $102,000 at March 31, 2006.  The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.



ITEM 3.

CONTROLS AND PROCEDURES



(a)

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



(b)

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















PART II - OTHER INFORMATION



ITEM 5.

OTHER INFORMATION



None.



ITEM 6.

EXHIBITS



See Exhibit Index.



















SIGNATURES







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





| |                                           
| | ------------------------------------------
| | REAL ESTATE ASSOCIATES LIMITED III        
| | (a California Limited Partnership)        
| |                                           
| | By:
National Partnership Investments Corp.
| | Corporate General Partner                 
| |                                           
| | By:   /s/David R. Robertson               
| | David R. Robertson                        
| | President and Chief Executive Officer     
| |                                           
| | By:   /s/Kathleen Danilchick              
| | Kathleen Danilchick                       
| | Senior Vice President and Chief           
| | Financial Officer                         
| |                                           
| | Date: May 5, 2006                         















REAL ESTATE ASSOCIATES LIMITED III

EXHIBIT INDEX





Exhibit

Description of Exhibit





3

Restated Certificate and Agreement of Limited Partnership  herein dated January 5, 1981 incorporated by reference to the Partnership's Form S-11 No. 268983.



3.1

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



3.2

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



31.1

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



31.2

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



32.1

Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.















Exhibit 31.1

CERTIFICATION

I, David R. Robertson, certify that:

1.

I have reviewed this quarterly report on Form 10-QSB of Real Estate Associates Limited III;

2.

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



3.

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



4.

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



(a)

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



(b)

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



(c)

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



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



(a)

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



(b)

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

Date:  May 5, 2006

/s/David R. Robertson

David R. Robertson

President and Chief Executive Officer of National Partnership Investments Corp., equivalent of the chief executive officer of the Partnership















Exhibit 31.2

CERTIFICATION

I, Kathleen Danilchick, certify that:

1.

I have reviewed this quarterly report on Form 10-QSB of Real Estate Associates Limited III;

2.

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



3.

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



4.

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



(a)

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



(b)

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



(c)

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



5.

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



(a)

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



(b)

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

Date:  May 5, 2006

/s/Kathleen Danilchick

Kathleen Danilchick

Senior Vice President and Chief Financial Officer of National Partnership Investments Corp., equivalent of the chief financial officer of the Partnership















Exhibit 32.1





Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002







In connection with the Quarterly Report on Form 10-QSB of Real Estate Associates Limited III (the "Partnership"), for the quarterly period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), David R. Robertson, as the equivalent of the chief executive officer of the Partnership, and Kathleen Danilchick, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:



(1)

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



(2)

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





| |                          
| | -------------------------
| | /s/David R. Robertson    
| | Name: David R. Robertson 
| | Date: May 5, 2006        
| |                          
| | /s/Kathleen Danilchick   
| | Name: Kathleen Danilchick
| | Date: May 5, 2006        





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