PALADIN REALTY INCOME PROPERTIES, INC.

Up to 38,500,000 Shares of Common Stock, $0.01 par value per share/$385,000,000

DEALER MANAGER AGREEMENT

                    , 2004

Prospect Financial Advisors, LLC

11355 West Olympic Boulevard, Suite 220

Los Angeles, CA 90064

Ladies and Gentlemen:

Paladin Realty Income Properties, Inc., a Maryland corporation (the ?Company?), is registering for public sale (the ?Offering?) a maximum of 38,500,000 shares of its common stock, $0.01 par value per share (the ?Common Stock?), of which amount: (i) up to 3,500,000 shares of Common Stock are to be offered pursuant to the Company?s dividend reinvestment plan for a purchase price of $10.00 per share (the ?DRIP Shares?); and (ii) up to 35,000,000 shares of Common Stock (the ?Shares? and, together with the DRIP Shares, the ?Offered Shares?) are to be issued and sold to the public on a ?best efforts? basis through you as the managing dealer (the ?Dealer Manager?) and the broker-dealers participating in the offering (the ?Participating Dealer?) at an initial offering price of $10.00 per share (subject in certain circumstances to discounts based upon the volume of shares purchased), with an initial aggregate purchase price of up to $350,000,000 for the Shares. Terms not otherwise defined herein shall have the same meaning as in the Prospectus, as that term is defined below.

The Company is the sole general partner of Paladin Realty Income Properties, L.P., a Delaware limited partnership that serves as the Company?s operating partnership subsidiary (the ?Operating Partnership?). Paladin Realty Advisors, LLC, a Delaware limited liability company, serves as the Company?s advisor pursuant to the terms of an Advisor Agreement dated                     , 2004 (the ?Advisor?).

The Company, the Operating Partnership and the Advisor hereby jointly and severally agree with you, the Dealer Manager, as follows:

1. Representations and Warranties of the Company and the Operating Partnership

The Company and the Operating Partnership hereby represent and warrant to the Dealer Manager and each Participating Dealer with whom the Dealer Manager has entered into or will enter into a Participating Dealer Agreement in the form attached to this Dealer Manager Agreement (this ?Agreement?) as Exhibit A that, as of the date hereof and at all times during the Offering Period, as that term is defined below (provided that, to the extent such representations and warranties and given only as of a specified date or dates, the Company and the Operating Partnership only make such representations and warranties as of such date or dates):

1

1.1 A registration statement on Form S-11 (No. 333-113863), including a preliminary prospectus, for the registration of the Offered Shares has been prepared by the Company in accordance with applicable requirements of the Securities Act of 1933, as amended (the ?Securities Act?), and the applicable rules and regulations (the ?Securities Act Regulations?) of the Securities and Exchange Commission (the ?Commission?) promulgated thereunder, and was initially filed with the Commission on or about March 23, 2004. The Company has prepared and filed such amendments thereto, if any, and such amended preliminary prospectuses, if any, as may have been required to the date hereof. As used in this Agreement, the term ?Registration Statement? means such registration statement in the form in which it first becomes effective, except that, if the Company files a post-effective amendment to such registration statement, ?Registration Statement? shall refer to such registration statement as so amended; the term ?Effective Date? means the applicable date upon which the Registration Statement or any post effective amendment thereto is or was first declared effective by the Commission; the term ?Prospectus? means the prospectus in the form constituting a part of the Registration Statement as well as in the form first filed with the Commission pursuant to Rule 424(b) after the Registration Statement becomes effective, except that the term ?Prospectus? shall also include any amendments or supplements thereto; and the term ?Filing Date? means the applicable date upon which the initial Prospectus or any amendment or supplement thereto is filed with the Commission. As of the date hereof, the Commission has not issued any stop order suspending the effectiveness of the Registration Statement and no proceedings for that purpose have been instituted or are pending before or threatened by the Commission under the Securities Act.

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