Loan No.: 26-5950685                                       Tradewinds Apartments

                                                                Newport News, VA





                        INDEMNITY AND GUARANTY AGREEMENT

                        --------------------------------



         THIS INDEMNITY AND GUARANTY AGREEMENT (this "Agreement"), made as of

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June 20, 2001 by CORNERSTONE REALTY INCOME TRUST, INC., a Virginia corporation

("Indemnitor"), whose address is 306 East Main Street, Richmond, Virginia 23219,

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Attention: Glade M. Knight, in favor of FIRST UNION NATIONAL BANK, a national

banking association ("Lender"), whose address is One First Union Center, 301

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South College Street, Mailcode NC 0166, Charlotte, North Carolina 28288-0166,

Attention: Contract Finance.



                              W I T N E S S E T H:



         WHEREAS, CRIT-VA III, INC., a Virginia corporation ("Borrower"), has

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obtained a loan (the "Loan") in the principal amount of Eleven Million One

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Hundred Thousand and No/100 Dollars ($11,100,000.00) from Lender; and



         WHEREAS, the Loan is evidenced by a Promissory Note (the "Note") dated

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of even date herewith, executed by Borrower and payable to the order of Lender,

in the stated principal amount of Eleven Million One Hundred Thousand and No/100

Dollars ($11,100,000.00), and is secured by a Deed of Trust and Security

Agreement dated of even date herewith (the "Deed of Trust") from Borrower for

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the benefit of Lender, encumbering that certain real property situated in the

City of Newport News, Commonwealth of Virginia, as more particularly described

on Exhibit A attached hereto and incorporated herein by this reference, together

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with the buildings, structures and other improvements now or hereafter located

thereon (the "Property") and by the other Loan Documents (as defined in the Deed

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of Trust); and



         WHEREAS, as a condition to making the Loan to Borrower, Lender has

required that Indemnitor indemnify Lender from and against and guarantee payment

to Lender of those items for which Borrower has recourse liability and for which

Lender has recourse against Borrower under the terms of Section 2.6 of the Note;

and



         WHEREAS, Indemnitor is the sole shareholder of Borrower, the extension

of the Loan to Borrower is of substantial benefit to Indemnitor and, therefore,

Indemnitor desires to indemnify Lender from and against and guarantee payment to

Lender of those items for which Borrower is personally liable and for which

Lender has recourse against Borrower under the terms of the Note and the Deed of

Trust.



         NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in

consideration of the foregoing premises and for other good and valuable

consideration, the receipt and sufficiency of which are hereby acknowledged,

Indemnitor hereby covenants and agrees for the benefit of Lender, as follows:



<PAGE>



     1.   Indemnity and Guaranty. Indemnitor hereby assumes liability for,

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hereby guarantees payment to Lender of, hereby agrees to pay, protect, defend

and save Lender harmless from and against, and hereby indemnifies Lender from

and against any and all liabilities, obligations, losses, damages, costs and

expenses (including, without limitation, reasonable attorneys' fees), causes of

action, suits, claims, demands and judgments of any nature or description

whatsoever (collectively, "Costs") which may at any time be actually imposed

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upon, incurred by or awarded against Lender as a result of:



          (a) Misapplication or misappropriation by Borrower of proceeds paid

under any insurance policies (or paid to Borrower as a result of any other claim

or cause of action against any person or entity) by reason of damage, loss or

destruction to all or any portion of the Property, to the full extent of such

proceeds not previously delivered to Lender, but which, under the terms of the

Loan Documents, should have been delivered to Lender;



          (b) Misapplication or misappropriation by Borrower of proceeds or

awards resulting from the condemnation or other taking in lieu of condemnation

of all or any portion of the Property to the full extent of such proceeds or

awards not previously delivered to Lender, but which, under the terms of the

Loan Documents, should have been delivered to Lender;



          (c) Misapplication or misappropriation by Borrower of all tenant

security deposits or other refundable deposits paid to or held by Borrower or

any other person or entity under the control or direction of Borrower, if any,

in connection with leases of all or any portion of the Property, which are not

applied in accordance with the terms of the applicable lease or other agreement;



          (d) Misapplication or misappropriation by Borrower of rent and other

payments received from tenants under leases of all or any portion of the

Property paid more than one (1) month in advance;



          (e) Misapplication or misappropriation by Borrower of rents, issues,

profits and revenues of all or any portion of the Property received by Borrower

or any other person or entity under the control or direction of Borrower that

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