Resource Real Estate Opportunity REIT (RSRL) 424B3 Prospectus supplement

FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-160463

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

SUPPLEMENT NO. 12 DATED APRIL 2, 2012

TO THE PROSPECTUS DATED JULY 15, 2011

This document supplements, and should be read in conjunction with, the prospectus of Resource Real Estate Opportunity REIT, Inc. dated July 15, 2011, Supplement No. 8 dated January 20, 2012, Supplement No. 9 dated February 15, 2012, Supplement No. 10 dated March 13, 2012, and Supplement No. 11 dated March 23, 2012. As used herein, the terms “we,” “our” and “us” refer to Resource Real Estate Opportunity REIT, Inc. and, as required by context, Resource Real Estate Opportunity OP, LP, which we refer to as our “Operating Partnership” and to their subsidiaries. Capitalized terms used in this supplement have the same meanings as set forth in the prospectus. The purpose of this supplement is to disclose:

• the status of our public offering;

• the acquisition of the Bristol Apartments;

• “Management’s Discussion and Analysis of Financial Condition and Results of Operations” similar to that filed in our annual report on Form 10-K for the year ended December 31, 2011; and

• our consolidated financial statements and the notes thereto as of and for the years ended December 31, 2011 and 2010.

Status of Offering

We commenced this initial public offering of shares of our common stock on June 16, 2010. As of March 29, 2012, we had accepted aggregate gross offering proceeds of $90.8 million related to the sale of 9.1 million shares of stock, all of which were sold in the primary offering. As of March 29, 2012, approximately 65.9 million shares of our common stock remain available for sale in our primary offering, and approximately 7,500,000 shares of our common stock remain available for issuance under our distribution reinvestment plan. As of March 29, 2012, the aggregate amount that we have raised from our private offering and this initial public offering is approximately $103.6 million.

Property Acquisition

On March 27, 2012, we, through a wholly owned subsidiary, acquired a multifamily community known as the Bristol Apartments located in Houston, Texas (“Bristol”) from an unaffiliated seller, Tritex Real Estate Advisors II, Inc., a Delaware corporation. Bristol is an 856-unit multifamily community located on an approximately 32-acre site with amenities, including but not limited to, a clubhouse, swimming pool, fitness center, and playground. Bristol was constructed in 1979 and is currently 52% leased.

The purchase price for Bristol was approximately $11.4 million plus closing costs. We funded the purchase price with proceeds from this offering. The purchase price represents a 78% discount to our estimate of the replacement cost of the property if built today.

We believe that Bristol is suitable for its intended purpose and adequately insured. We intend to make renovations and improvements to Bristol. Improvements will include new roofs and the repainting of the entire property, as well as bringing all down units back to leasable condition.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a Maryland corporation that intends to acquire a diversified portfolio of discounted U.S. commercial real estate and real estate-related debt that has been significantly discounted due to the effects of recent economic events and high levels of leverage on U.S. commercial real estate, including properties that may benefit from extensive renovations that may increase their long-term values. Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. We believe that this decline has produced an attractive environment to acquire commercial real estate and real

estate-related debt at significantly discounted prices. We have a particular focus on operating multifamily assets and we intend to target this asset class while also purchasing interests in other types of commercial property assets consistent with our investment objectives. Our targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions, (iii) multifamily rental properties to which we can add value with a capital infusion (referred to as “value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities. However, we are not limited in the types of real estate assets in which we may invest and, accordingly, we may invest in other real estate assets either directly or together with a co-investor or joint venture partner. We currently anticipate holding approximately 55% of our total assets in categories (i) and (ii), 30% of our total assets in category (iii), and 15% of our total assets in category (iv). Also, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. Thus, to the extent that our advisor presents us with investment opportunities that allow us to meet the requirements to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code, and to maintain our exclusion from regulation as an investment company pursuant to the Investment Company Act of 1940, our portfolio composition may vary from what we have initially disclosed.

We commenced this public offering of our common stock on June 16, 2010 after having completed a private offering of our common stock on June 9, 2010, both of which have provided our initial capitalization. We describe these offerings further in “Liquidity and Capital Resources” below.

Results of Operations

We were formed on June 3, 2009. We commenced active real estate operations as of September 7, 2010 when we had raised the minimum offering amount in this offering. As of December 31, 2011, we had acquired one multifamily property, eight non-performing promissory notes (four of which we have foreclosed on, and one of which negotiated a discounted payoff) and two performing promissory notes. Our management is not aware of any material trends or uncertainties, favorable, or unfavorable, other than national economic conditions affecting our targeted portfolio, the multifamily residential housing industry and real estate generally, which may reasonably be expected to have a material impact on either capital resources or the revenues or incomes to be derived from the operation of such assets or those that we expect to acquire.

Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

The following table sets forth the results of our operations for the years ended December 31, 2011 and 2010 (in thousands).

	Years Ended December 31,
	2011			2010
Revenues:
Rental income	$	3,976		$	243
Gain on payoff of loan held for investment		250			—
Interest income		161			41
Total revenues		4,387			284
Expenses:
Rental operating		4,251			461
Acquisition costs		1,881			442
Foreclosure costs		400			—
Management fees-related parties		674			78
General and administrative		2,736			1,180
Depreciation and amortization expense		1,564			198
Total expenses		11,506			2,359
Interest expense		7			—
Interest expense - related party		3			—
Net loss	$	(7,129	)	$	(2,075	)

Revenues: During the years ended December 31, 2011 and 2010, we recorded income primarily from rents and, to a lesser extent, from interest from both performing promissory notes and interest-bearing bank accounts in which we deposited the proceeds of our public and private offerings. During 2011, we also recorded a net gain of $250,000 from the payoff of a non-performing loan by the borrower.

Expenses: Our rental operating expense, increased for the year ended December 31, 2011 due to operating expenses incurred for four properties we owned during 2011 as compared to two properties in 2010 we owned during 2010, one of which had only three months of activity for the year ended December 31, 2010. In conjunction with the increase from 2010 to 2011 in the number of properties we owned, we incurred increased managements fees, general and administrative expenses, depreciation and amortization expenses. The $1.6 million increase in general and administrative expenses consisted of an increase in our company level expenses of $800,000 and an increase in property level expenses of an additional $800,000. The increase in company level expenses consisted primarily of a $328,000 increase of professional fees, a $154,000 increase in allocated payroll of our advisor, and $153,000 in travel expenses. General and administrative expenses increased at the property level from $100,000 in 2010 to $900,000 in 2011 due to the operation of two additional properties, additional professional expenses of $188,000, and marketing and promotional expenses of $117,000. Also, acquisition costs and foreclosure costs increased in 2011 due to the increased number of acquisitions and a transfer tax of $350,000 relating to the foreclosure on the Iroquois Apartments. Interest expense due to related parties in 2011 reflects the bridge loan provided to us by the advisor in conjunction with our acquisition of the note secured by the Iroquois Apartments. Interest expense also reflects the amortization of deferred financing costs related to the line of credit.

Liquidity and Capital Resources

We derive the capital required to purchase real estate investments and conduct our operations from the proceeds of our private and public offerings and any future offerings we may conduct, from secured or unsecured financings from banks or other lenders, from the sale of assets and from any undistributed funds from our operations.

Public Offering. Pursuant to this offering, we are offering up to 75 million shares of common stock, $0.01 par value per share, at $10.00 per share. We are also offering up to 7.5 million shares of common stock to be issued pursuant to our distribution reinvestment plan under which our stockholders may elect to have distributions reinvested in additional shares at $9.50 per share. As of December 31, 2011, a total of 7,170,442 shares of common stock had been issued in connection with this offering, resulting in approximately $71.4 million of gross offering proceeds.

We have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in this offering. If we are unable to raise substantial funds, this could increase our fixed operating expenses as a percentage of gross income, potentially reducing our net income and limiting our ability to make distributions to our shareholders.

On December 2, 2011, we, through our operating partnership, entered into a secured revolving credit facility (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”), as lender. Under the Credit Facility, we may borrow up to $25.0 million (the “Facility Amount”). Draws under the Credit Facility will be secured by those certain multifamily properties directly owned by our subsidiaries which we have elected to add to the borrowing base. The proceeds of the Credit Facility may be used by us for working capital, property improvements and other general corporate purposes.

The entire unpaid principal balance of all borrowings under the Credit Facility and all accrued and unpaid interest thereon will be due and payable in full on December 2, 2014, which date may be extended to December 2, 2015 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed under the Credit Facility. We may borrow under the Credit Facility at a rate equal to LIBOR plus 3.0%. In addition, we incurred certain closing costs in connection with the Credit Facility, including a loan fee equal to 0.375% of the Facility Amount, which fee was paid to Bank of America. We will be required to make monthly interest-only payments once we draw upon the Credit Facility. We also may prepay the Credit Facility in whole or in part at any time without premium or penalty.

Our operating partnership’s obligations with respect to the Credit Facility are guaranteed by us, pursuant to the terms of a guaranty dated as of December 2, 2011 (the “Guaranty”). The Credit Facility and the Guaranty contain, among others, the following restrictive covenants:

• We must maintain a minimum tangible net worth equal to at least (i) 200% of the outstanding principal amount of the Credit Facility and (ii) $20 million.

• We must also maintain unencumbered liquid assets with a market value of not less than the greater of (i) $5 million or (ii) 20% of the outstanding principal amount of the Credit Facility.

• We may not incur any additional secured or unsecured debt without Bank of America’s prior written consent and approval, which consent and approval is not to be unreasonably withheld.

We are currently in compliance with all such covenants. Although we expect to remain in compliance with these covenants for the duration of the term of the Credit Facility, depending upon our future operating performance, capital raising success, property and financing transactions and general economic conditions, we cannot assure you that we will continue to be in compliance. As of March 22, 2012, we had drawn $650,000 from the Credit Facility, and had repaid $250,000 of this amount.

As of December 31, 2011, we have acquired a multifamily property located at 107th Avenue in Omaha, Nebraska, a multifamily property located in Houston, Texas known as Arcadia at Westheimer, a multifamily property located in Birmingham, Alabama known as Town Park, a non-performing note secured by a multifamily property located in Dayton, Ohio known as the Cannery, a multifamily property located in Philadelphia, Pennsylvania known as Iroquois Apartments, and a non-performing note secured by a multifamily property located in Tampa, Florida known as Campus Club. We have also acquired a portfolio of small bank loans consisting of two performing notes secured by multifamily properties located in Michigan and Indiana, as well as two non-performing notes secured by multifamily properties in Michigan and Ohio, of which one been repaid in full.

We intend to allocate a portion of the funds we raise as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of the properties we have acquired and those properties that we may acquire in the future. If these allocated amounts and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties, debt investments or other assets we may hold. We cannot assure you that we will be able to access additional funds upon acceptable terms when we need them.

In addition, our advisor has advanced funds to us for certain organization and offering costs. We reimburse the advisor for all of the expenses paid or incurred by our advisor or its affiliates on behalf of us or in connection with the services provided to us in relation to this offering. This includes all organization and offering costs of up to 2.5% of gross offering proceeds, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer manager fee) to exceed 2.5% of gross offering proceeds as of the date of such reimbursement. For the years ended December 31, 2011 and 2010, such organization and offering costs paid by our advisor totaled approximately $600,000 and $1.1 million, respectively. As of December 31, 2011 and 2010, a total of $1.9 million and $2.7 million, respectively, of these advances from our advisor for organization and offering costs were unpaid and due to our advisor. As of December 31, 2011 and 2010, amounts paid for organization and offering costs directly from us totaled $1.4 million and $400,000, respectively.

As of December 31, 2011, we had no outstanding debt. Once we have fully invested the proceeds of this offering, based on current lending market conditions, we expect that any debt financing we incur, on a total portfolio basis, would not exceed 35% of the cost of our real estate investments if unstabilized and 65% to 70% if stabilized (before deducting depreciation or other non-cash reserves) plus the value of our other assets. We may also increase the amount of debt financing we use with respect to an investment over the amount originally incurred if the value of the investment increases subsequent to our acquisition and if credit market conditions permit us to do so. Our charter limits us from incurring debt such that our total liabilities may not exceed 75% of the cost (before deducting depreciation or other non-cash reserves) of our tangible assets, although we may exceed this limit under certain circumstances. We expect that our primary liquidity source for acquisitions and long-term funding will include the net proceeds from this offering and, to the extent we co-invest with other entities, capital from any future joint venture partners. We may also pursue a number of potential other funding sources, including mortgage loans, portfolio level credit lines and government financing.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make payments to our advisor and the dealer manager of our public offering, which is an affiliate of our advisor. During our offering stage, these payments include selling commissions and the dealer manager fee as well as payments to the dealer manager and our advisor for reimbursement of organization and offering expenses. However, our advisor has agreed to reimburse us to the extent that selling commissions, the dealer manager fee and other organization and offering expenses incurred by us exceed 15% of our gross offering proceeds. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection or purchase of real estate investments. In addition, we expect to continue to make payments to our advisor for the management of our assets and costs incurred by our advisor in providing services to us. We describe these payments in more detail in Note 9 of the notes to our consolidated financial statements.

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee of our board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expense reimbursements for the four fiscal quarters ended December 31, 2011 exceeded the charter imposed limitation; however, the conflicts committee determined that the relationship of our operating expenses to our average invested assets was justified for these periods given the costs of operating a public company during the early stage of our operations.

Funds from Operations and Modified Funds from Operations

Funds from operations, or FFO, is a non-GAAP financial performance measure that is widely recognized as a measure of REIT operating performance. We use FFO as defined by the National Association of Real Estate Investment Trusts to be net income (loss), computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property (including deemed sales and settlements of pre-existing relationships), plus depreciation and amortization on real estate assets, and after related adjustments for unconsolidated partnerships, joint ventures and subsidiaries and noncontrolling interests. We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes real estate-related depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate and intangibles diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, is helpful to our investors in understanding our performance. Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. In addition, FFO will be impacted by the types of investments in our targeted portfolio which will consist of, but are not limited to, commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate that was foreclosed upon and sold by financial institutions, (iii) multifamily rental properties to which we can add value with a capital infusion (referred to as “value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities.

Since FFO was promulgated, GAAP has adopted several new accounting pronouncements, such that management and many investors and analysts have considered the presentation of FFO alone to be insufficient. Accordingly, in addition to FFO, we use modified funds from operations or MFFO, as defined by the Investment Program Association, or IPA. MFFO excludes from FFO the following items:

(1) acquisition fees and expenses;

(2) straight-line rent amounts, both income and expense;

(3) amortization of above-or below-market intangible lease assets and liabilities;

(4) amortization of discounts and premiums on debt investments;

(5) impairment charges;

(6) gains or losses from the early extinguishment of debt;

(7) gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;

(8) gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting, including interest rate and foreign exchange derivatives;

(9) gains or losses related to consolidation from, or deconsolidation to, equity accounting;

(10) gains or losses related to contingent purchase price adjustments; and

(11) adjustments related to the above items for unconsolidated entities in the application of equity accounting.

We believe that MFFO is helpful in assisting management assess the sustainability of operating performance in future periods and, in particular, after our offering and acquisition stages are complete, primarily because it excludes acquisition expenses that affect portfolio operations only in the period in which the asset is acquired. Although MFFO includes other adjustments, the exclusion of acquisition expenses is the most significant adjustment to us at the present time, as we are currently in our offering and acquisition stages. Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.

As explained below, management’s evaluation of our operating performance excludes the items considered in the calculation based on the following economic considerations. Many of the adjustments in arriving at MFFO are not applicable to us. For example, we have not suffered any impairments. Nevertheless, we explain below the reasons for each of the adjustments made in arriving at our MFFO definition:

• Acquisition expenses.In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analyses differentiate costs

to acquire the investment from the operations derived from the investment. Prior to 2009, acquisition costs for both of these types of investments were capitalized under GAAP; however, beginning in 2009, acquisition costs related to business combinations are expensed. Both of these acquisition costs have been and will continue to be funded from the proceeds of our offering and not from operations. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition expenses include those paid to our advisor or third parties.

• Adjustments for straight-line rents and amortization of discounts and premiums on debt investments. In the proper application of GAAP, rental receipts and discounts and premiums on debt investments are allocated to periods using various systematic methodologies. This application will result in income recognition that could be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with management’s analysis of operating performance.

• Adjustments for amortization of above or below market intangible lease assets. Similar to depreciation and amortization of other real estate related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes predictably over time and that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the performance of the real estate.

• Impairment charges, gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting and gains or losses related to contingent purchase price adjustments. Each of these items relates to a fair value adjustment, which is based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding which may not be directly attributable to current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, management believes MFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals rather than changes that may reflect anticipated gains or losses. In particular, because GAAP impairment charges are not allowed to be reversed if the underlying fair values improve or because the timing of impairment charges may lag the onset of certain operating consequences, we believe MFFO provides useful supplemental information related to current consequences, benefits and sustainability related to rental rate, occupancy and other core operating fundamentals.

• Adjustment for gains or losses related to early extinguishment of hedges, debt, consolidation or deconsolidation and contingent purchase price. Similar to extraordinary items excluded from FFO, these adjustments are not related to continuing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators.

By providing MFFO, we believe we are presenting useful information that also assists investors and analysts to better assess the sustainability of our operating performance after our offering and acquisition stages are completed. We also believe that MFFO is a recognized measure of sustainable operating performance by the real estate industry. MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisition stages are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities or as affected by other MFFO adjustments. However, investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering and acquisition stages are completed, as it excludes acquisition costs that have a negative effect on our operating performance and the reported book value of our common stock and stockholders’ equity during the periods in which properties are acquired.

FFO or MFFO should not be considered as an alternative to net income (loss), nor as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to fund distributions. In particular, as we are currently in the acquisition phase of our life cycle, acquisition costs and other adjustments that are increases to MFFO are, and may continue to be, a significant use of cash. Accordingly, both FFO and MFFO should be reviewed in connection with other GAAP measurements. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs.

The following section presents our calculation of FFO and MFFO and provides additional information related to our operations (in thousands, except per share amounts). As a result of the timing of the commencement of this offering and our active real estate operations, FFO and MFFO are not relevant to a discussion comparing operations for the two periods presented. We expect revenues and expenses to increase in future periods as we raise additional offering proceeds and use them to acquire additional investments.

	For the Years Ended December 31,						Cumulative Since Inception
	2011			2010
Net loss-GAAP	$	(7,129	)	$	(2,075	)	$	(9,319	)
Depreciation		890			65			955
FFO		(6,239	)		(2,010	)		(8,364	)
Adjustments for straight-line rents		(103	)		—			(103	)
Amortization of intangible lease assets		674			133			807
Acquisition costs		1,881			442			2,323
MFFO	$	(3,787	)	$	(1,435	)	$	(5,337	)
GAAP basic and diluted loss per common share	$	(1.34	)	$	(1.78	)	$	(1.44	)
FFO per common share	$	(1.17	)	$	(1.73	)	$	(1.29	)
MFFO per common share	$	(0.71	)	$	(1.23	)	$	(0.82	)

Critical Accounting Policies

We consider these policies critical because they involve significant management judgments and assumptions, they require estimates about matters that are inherently uncertain, and they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of our assets and liabilities and our disclosure of contingent assets and liabilities on the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

Real Estate Assets

Depreciation. We make subjective assessments as to the useful lives of our depreciable assets. These assessments have a direct impact on our net income, because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis throughout the expected useful lives of these investments. We consider the period of future benefit of an asset to determine its appropriate useful life. The estimated useful lives of our assets by class are as follows:

Buildings	27.5 years
Building improvements	3-27.5 years
Tenant improvements	Shorter of lease term or expected useful life

Real Estate Purchase Price Allocation. We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases, which we expect will range from one month to ten years.

We measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’s estimates of value are expected to be made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

We consider information obtained about each property as a result of our preacquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

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

We amortize the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles will be amortized to expense over the initial term, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.

Estimates of the fair values of the tangible and intangible assets will require us to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocation, which would impact the amount of our net income.

Valuation of Real Estate Assets. We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, we will assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. If based on this analysis we do not believe that we will be able to recover the carrying value of the asset, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset.

Projections of future cash flows require us to estimate the expected future operating income and expenses related to an asset as well as market and other trends. The use of inappropriate assumptions in our future cash flows analyses would result in an incorrect assessment of our assets’ future cash flows and fair values and could result in the overstatement of the carrying values of our real estate assets and an overstatement of our net income.

Loans Held for Investment, Net

Real estate loans held for investment are recorded at cost and reviewed for potential impairment at each balance sheet date. A loan held for investment is considered impaired when it becomes probable, based on current information, that we will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan was deemed to be impaired, we would record a reserve for loan losses through a charge to income for any shortfall. Failure to recognize impairment would result in the overstatement of the carrying values of our real estate loans receivable and an overstatement of our net income.

Revenue Recognition

We recognize minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease and we will include amounts expected to be received in later years in deferred rents. We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period in which the related expenses are incurred.

We make estimates of the collectability of our tenant receivables relation to base rents, including straight-line rentals, expense reimbursements and other revenue or income. We specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, we will make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. These estimates have a direct impact on our net income because a higher bad debt reserve results in less net income.

The specific timing of a sale will be measured against various criteria related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit recognition under the full-accrual method are not met, we will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met.

Interest income from performing loans receivable are recognized based on the contractual terms of the loan agreement. Fees related to any buy-down of the interest rate will be deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. Closing costs related to the purchase of a performing loan held for investment will be amortized using effective yield method over the term of the loan and accreted as an adjustment against interest income.

Adoption of New Accounting Standards

Troubled Debt Restructurings.This guidance is designed to assist creditors with determining whether or not a restructuring constitutes a troubled debt restructuring. Additional guidance has been added to help creditors determine whether a concession has been granted and whether a debtor is experiencing financial difficulty. Both of these conditions are required to be met for a restructuring to constitute a troubled debt restructuring. This guidance is effective for the first interim period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of the provisions of this standard did not have a material impact on our consolidated financial statements.

Comprehensive Income (Loss). In June 2011, the FASB issued an amendment to eliminate the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity. The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss). We have provided the disclosures as required by this amendment beginning with the year ended December 31, 2011.

Subsequent Events

From January 1, 2012 to March 26, 2012, we raised approximately $19.2 million in offering proceeds through the issuance of approximately 1.9 million shares of common stock under this offering. As of March 26, 2012, approximately 66.0 million shares remained available for sale to the public under this offering, exclusive of shares available under our distribution reinvestment plan.

On January 3, 2012, a fire substantially damaged three units at Town Park. Town Park was insured for the damage, estimated at approximately $350,000. Expected insurance proceeds to be awarded have not yet been determined.

On January 31, 2012, we added Arcadia at Westheimer and Town Park to the collateral pool of the Credit Facility and drew $650,000 against the Facility Amount. On February 29, 2012, we repaid $250,000 of this amount.

On February 9, 2012, we were the successful bidder at the foreclosure sale of the property collateralized by the Campus Club Note. Prior to this sale, we were unsuccessful in any attempt to restructure the loan or negotiate a discounted payoff of the note. Title to Campus Club was transferred to us on February 20, 2012.

On February 10, 2012, the our Board of Directors declared a stock distribution of 0.015 shares of common stock, or 1.5% of each outstanding share of common stock, to the stockholders of record at the close of business on March 31, 2012. Such stock distribution is to be paid on April 13, 2012.

On February 18, 2012, the redemption period relating to the foreclosure of the Heatherwood note terminated. We took possession of the property on February 20, 2012.

On March 21, 2012, the Company acquired the Deerfield non-performing note for $10.3 million. The note is collateralized by a property, located in Hermantown, Minnesota, is a 166-unit multifamily residential rental property.

On March 27, 2012, the Company acquired The Bristol apartments for $11.4 million. The property, located in Houston, Texas is an 856-unit multifamily residential rental property.

We have evaluated subsequent events and determined that no events other than the above have occurred which would require an adjustment to our consolidated financial statements.

Experts

The following information supplements the disclosure in the prospectus under the heading “Experts.”

The consolidated financial statements and related financial statement schedules as of December 31, 2011 and 2010 and for the years ended December 31, 2011 and 2010, included in this registration statement and prospectus have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said report.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2011 and 2010		F-3
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2011 and 2010		F-4
Consolidated Statements of Changes in Stockholders’ Equity the Years Ended December  31, 2011 and 2010		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010		F-6
Notes to Consolidated Financial Statements – December 31, 2011		F-7
Schedule III – Real Estate and Accumulated Depreciation		F-22
Schedule IV – Mortgage Loans on Real Estate		F-23

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Resource Real Estate Opportunity REIT, Inc.:

We have audited the accompanying consolidated balance sheets of Resource Real Estate Opportunity REIT, Inc. (a Maryland corporation) and its subsidiaries (collectively, the “Company”) as of December 31, 2011 and 2010 and the related consolidated statements of comprehensive loss, changes in stockholders’ equity and cash flows for the years ended December 31, 2011 and 2010. Our audits of the basic financial statements included the financial statement schedules listed in the index appearing under Item 15(b). These financial statements and financial statement schedules are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Resource Real Estate Opportunity REIT, Inc. and its subsidiaries as of December 31, 2011 and 2010 and the consolidated results of their operations and their cash flows for the years ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

March 30, 2012

F-2

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31,
	2011			2010
ASSETS
Investments:
Rental properties, net	$	28,549		$	8,336
Loans held for investment, net		17,997			6,250
Cash		15,202			5,566
Prepaid expenses		407			200
Contributions receivable		1,686			155
Tenant receivables, net		60			14
Deposits		64			20
Deferred financing costs, net		222			—
Deferred offering costs, net		4,243			3,684
Identified intangible assets, net		276			129
Total assets	$	68,706		$	24,354
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Due to related parties	$	3,928		$	3,645
Accounts payable and accrued expenses		1,445			854
Tenant prepayments		94			—
Security deposits		322			5
Subscription deposits		—			627
Total liabilities		5,789			5,131
Stockholders’ equity:
Preferred stock (par value $.01; 10,000,000 shares authorized; none issued and outstanding)		—			—
Common stock (par value $.01; 1,000,000,000 shares authorized; 8,454,169 and 2,438,876 issued and outstanding, respectively)		84			24
Convertible stock (“promote shares”) (par value $.01; 50,000 shares authorized; 50,000 issued and outstanding)		1			1
Additional paid-in capital		74,258			21,388
Accumulated deficit		(11,426	)		(2,190	)
Total stockholders’ equity		62,917			19,223
Total liabilities and stockholders’ equity	$	68,706		$	24,354

The accompanying notes are an integral part of these consolidated statements.

F-3

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except per share data)

	For the Years Ended December 31,
	2011			2010
Revenues:
Rental income	$	3,976		$	243
Gain on payoff of loan held for investment		250			—
Interest income		161			41
		4,387			284
Expenses:
Rental operating		4,251			461
Acquisition costs		1,881			442
Foreclosure costs		400			—
Management fees - related parties		674			78
General and administrative		2,736			1,180
Depreciation and amortization expense		1,564			198
Total expenses		11,506			2,359
Loss before interest expense		(7,119	)		(2,075	)
Interest expense		(7	)		—
Interest expense – related party		(3	)		—
Net loss and comprehensive loss	$	(7,129	)	$	(2,075	)
Weighted average shares outstanding		5,324,984			1,162,713
Basic and diluted loss per share	$	(1.34	)	$	(1.78	)

The accompanying notes are an integral part of these consolidated statements.

F-4

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(in thousands)

	Common Stock					Convertible Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Amount		Shares		Amount		Capital			Deficit			Equity
Balance at January 1, 2010		20		$	—		—	$	—	$	200		$	(115	)	$	85
Issuance of stock		2,423			24		5		—		24,131			—			24,155
Conversion of common to convertible stock		(5	)		—		45		1		—			—			1
Syndication costs		—			—		—		—		(2,943	)		—			(2,943	)
Net loss and comprehensive loss		—			—		—		—		—			(2,075	)		(2,075	)
Balance at December 31, 2010		2,438			24		50		1		21,388			(2,190	)		19,223
Issuance of common stock		5,805			58		—		—		57,689			—			57,747
Syndication costs		—			—		—		—		(6,924	)		—			(6,924	)
Distributions of common stock		211			2		—		—		2,105			(2,107	)		—
Net loss and comprehensive loss		—			—		—		—		—			(7,129	)		(7,129	)
Balance at December 31, 2011		8,454		$	84		50	$	1	$	74,258		$	(11,426	)	$	62,917

The accompanying notes are an integral part of this consolidated statement.

F-5

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the Years Ended December 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(7,129	)	$	(2,075	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on payoff of loan held for investment		(250	)		—
Depreciation and amortization		1,571			198
Accretion of discount and direct loan fees and costs		(48	)		—
Changes in operating assets and liabilities:
Prepaid expenses		(147	)		(187	)
Tenant receivables		(38	)		(14	)
Deposits		(44	)		(20	)
Due to related parties, net of offering costs		(276	)		(167	)
Accounts payable and accrued expenses		548			854
Tenant prepayments		(3	)		—
Security deposits		317			5
Net cash used in operating activities		(5,499	)		(1,406	)
Cash flows from investing activities:
Proceeds received on payoff of loan held for investment		815			—
Property acquisition		—			(225	)
Loan acquisitions		(30,538	)		(14,050	)
Capital expenditures		(4,064	)		(638	)
Principal payments received on loans		24			—
Cash received on foreclosure of loan held for investment		462			—
Net cash used in investing activities		(33,301	)		(14,913	)
Cash flows from financing activities:
Proceeds from issuance of common stock		55,589			24,078
Payment of deferred financing costs		(229	)		—
Syndication costs		(6,924	)		(2,943	)
Net cash provided by financing activities		48,436			21,135
Net increase in cash		9,636			4,816
Cash at beginning of period		5,566			750
Cash at end of year	$	15,202		$	5,566
Supplemental disclosure of non-cash items:
Investor contributions held in escrow which converted to common stock	$	627		$	549
Property and intangibles received on foreclosure of two loans held for investment	$	17,788		$	7,800
Stock distributions	$	2,107		$	—
Cash paid for interest – related party	$	3		$	—

The accompanying notes are an integral part of these consolidated statements.

F-6

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011

NOTE 1 – NATURE OF BUSINESS AND OPERATIONS

Resource Real Estate Opportunity REIT, Inc. (the “Company”) was organized in Maryland on June 3, 2009. On September 15, 2009, the Company commenced a private placement offering to accredited investors for the sale of up to 5.0 million shares of common stock at a price of $10 per share, with discounts available to certain categories of purchasers. The private offering closed on June 9, 2010, at which time the Company had raised aggregate gross proceeds of $12.8 million, which resulted in the issuance of 1,283,727 common shares, including 20,000 shares purchased by the Advisor (see below), and net proceeds of $11.3 million after payment of $1.5 million in syndication costs. Also, in conjunction with the private offering, the Company offered 5,000 shares of convertible stock at a price of $1 per share. Investors acquired 937 shares of the convertible stock; Resource Real Estate Opportunity Advisor, LLC (the “Advisor”), which is an indirect wholly owned subsidiary of Resource America, Inc. (“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, commercial finance and financial fund management sectors, purchased the remaining 4,063 shares. The Advisor has been engaged to manage the day-to-day operations of the Company. The Advisor contributed $200,000 to the Company in exchange for 20,000 shares of common stock on June 17, 2009, of which 4,500 shares were converted into 45,000 shares of convertible stock in June 2010. The Advisor purchased an additional 35,000 shares of common stock on June 24, 2011 for $315,000.

On June 16, 2010, the Company’s Registration Statement on Form S-11 (File No. 333-160463), covering a primary public offering of up to 75.0 million shares of common stock and a public offering pursuant to the Company’s distribution reinvestment plan of up to an additional 7.5 million shares of common stock, was declared effective under the Securities Act of 1933 and the Company commenced the offering, which is ongoing. The Company is offering shares of common stock in its primary offering for $10 per share, with discounts available to certain categories of investors. The Company is also offering shares pursuant to its distribution reinvestment plan at a purchase price equal to $9.50 per share. As of December 31, 2011, the Company has raised aggregate gross offering proceeds of $71.4 million, which resulted in the issuance of 7,170,442 shares of common stock in its public offering, including the 35,000 shares purchased by the Advisor.

The Company’s objective is to purchase a diversified portfolio of discounted U.S. commercial real estate and real estate-related assets in order to generate gains to stockholders from the potential appreciation in the value of the assets and to generate current income for stockholders by distributing cash flow from the Company’s investments. The Company has acquired and intends to continue to acquire real estate-related debt and equity that has been significantly discounted due to the effects of recent economic events and high levels of leverage, as well as stabilized properties that may benefit from extensive renovations that may increase their long-term values. The Company has a particular focus on acquiring and operating multifamily assets, and it intends to target this asset class while also acquiring interests in other types of commercial property assets consistent with its investment objectives. The Company’s targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first and second priority mortgage loans, mezzanine loans, subordinate participations in first mortgage loans, or B-Notes, and other loans, (ii) real estate that was foreclosed upon and sold by financial institutions, (iii) multifamily rental properties to which the Company can add value with a capital infusion (“value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities. However, the Company is not limited in the types of real estate assets in which it may invest and, accordingly, it may invest in other real estate-related assets either directly or together with a co-investor or joint venture partner.

The Company elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended, for the taxable years ended December 31, 2011 and 2010. The Company also operates its business in a manner that should permit it to maintain its exemption from registration under the Investment Company Act of 1940.

F-7

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries as follows:

Subsidiaries	Apartment Complex	Number of Units	Location
RRE Opportunity Holdings, LLC	N/A	N/A	Wilmington, Delaware
Resource Real Estate Opportunity OP, LP	N/A	N/A	Wilmington, Delaware
RRE 107th Avenue Holdings, LLC (“107th Avenue”)	107th Avenue	5	Omaha, Nebraska
RRE Westhollow Holdings, LLC (“Westhollow”)	Arcadia	404	Houston, Texas
RRE Crestwood Holdings, LLC (“Crestwood”)	Town Park	270	Birmingham, Alabama
RRE Iroquois, LP (“Iroquois”)	Iroquois	133	Philadelphia, Pennsylvania
RRE Iroquois Holdings, LLC	N/A	N/A	Wilmington, Delaware
RRE Campus Club Holdings, LLC	Campus Club	64	Tampa, Florida

All intercompany accounts and transactions have been eliminated in consolidation.

Adoption of New Accounting Standards

Comprehensive Income (Loss). In June 2011, FASB issued an amendment to eliminate the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity. The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss). The Company has provided the disclosures as required by this amendment beginning with the year ending December 31, 2011.

Troubled Debt Restructurings.This guidance is designed to assist creditors with determining whether or not a restructuring constitutes a troubled debt restructuring. Additional guidance has been added to help creditors determine whether a concession has been granted and whether a debtor is experiencing financial difficulty. Both of these conditions are required to be met for a restructuring to constitute a troubled debt restructuring. This guidance is effective for the first interim period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of the provisions of this standard did not have a material impact on the Company’s consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company estimates the allowance for uncollectible receivables and loan losses and adjusts the balance quarterly. Actual results could differ from those estimates.

F-8

Rental Properties

The Company records acquired rental properties at cost. The Company considers the period of future benefit of an asset to determine its appropriate useful life. The Company anticipates the estimated useful lives of its assets by class are as follows:

Buildings	27.5 years
Building improvements	3.0 to 27.5 years
Tenant improvements	Shorter of lease term or expected useful life

Impairment of Long Lived Assets

When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment, in accordance with FASB ASC Topic 360, “Property, Plant and Equipment”. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. The review also considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors.

If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss would be recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss would be the adjustment to fair value less the estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income. There was no indication of impairment as of December 31, 2011 and 2010.

Loans Held for Investment, Net

The Company records acquired loans held for investment at cost and reviews them for potential impairment at each balance sheet date. A loan held for investment is considered impaired when it becomes probable, based on current information, that the Company is unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or, as a practical expedient, the fair value of the collateral. If a loan is deemed to be impaired, the Company records a reserve for loan losses through a charge to income for any shortfall.

The Company may acquire real estate loans at a discount due to their credit quality. Revenues from these loans are recorded under the effective interest method. Under this method, an effective interest rate (“EIR”) is applied to the cost basis of the real estate loan held for investment. The EIR that is calculated when the loan held for investment is acquired remains constant and is the basis for subsequent impairment testing and income recognition. However, if the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the loan held for investment has been fully recovered.

Interest income from performing loans held for investment is recognized based on the contractual terms of the loan agreement. Fees related to any buy down of the interest rate are deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. The initial investment made in a purchased performing loan includes the amount paid to the seller plus fees. The initial investment frequently differs from the related loan’s principal amount at the date of the purchase. The difference is recognized as an adjustment of the yield over the life of the loan. Closing costs related to the purchase of a performing loan held for investment are amortized over the term of the loan and accreted as an adjustment against interest income.

F-9

Allocation of Purchase Price of Acquired Assets

The cost of rental properties is allocated to net tangible and intangible assets based on relative fair values. Fair value estimates are based on information obtained from a number of sources, including information obtained about each property as a result of due diligence, marketing and leasing activities. The Company allocates the purchase price of properties to acquired tangible assets, consisting of land, buildings, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, the value of in-place leases and the value of tenant relationships, based in each case on their fair values.

The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases.

The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

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

The Company amortizes the value of in-place leases to expense over the average remaining term of the respective leases. The value of customer relationship intangibles are amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles associated with that tenant would be charged to expense in that period.

The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of the Company’s reported net income. Initial purchase price allocations are subject to change until all information is finalized, which is generally within one year of the acquisition date.

F-10

Revenue Recognition and Allowance for Bad Debts

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease and includes amounts expected to be received in later years in deferred rents. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred.

The Company makes estimates of the collectability of its tenant receivables related to base rents, including straight-line rentals, expense reimbursements and other revenue or income. The Company determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Company’s previous loss history, the tenants’ current ability to pay their obligations to the Company, the condition of the general economy and the industry as a whole. In addition, with respect to tenants in bankruptcy, the Company makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. These estimates have a direct impact on the Company’s net income because a higher bad debt reserve results in less net income. As of December 31, 2011 and 2010, there was $3,566 and $1,105, respectively, in the allowance for uncollectable receivables.

The specific timing of a sale is measured against various criteria related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for gain recognition under the full-accrual method are not met, the Company defers gain recognition and accounts for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met.

The future minimum rental payments to be received from noncancelable operating leases are $3.5 million and $2,000 for the years ending 2012 and 2013, respectively, and none thereafter.

Deferred Offering Costs

Through December 31, 2011, the Advisor has advanced approximately $3.6 million on behalf of the Company related to public offering costs consisting of accounting, advertising allocated payroll, due diligence, marketing, legal and similar costs. A portion of these costs is charged to equity upon the sale of each share of common stock sold under the public offering. Similarly, a portion of the proceeds received from such sales is paid to the Advisor to reimburse it for the amount incurred on behalf of the Company. Deferred offering costs represent the portion of the total costs incurred that have not been charged to equity to date and is the major component of due to related parties on the consolidated balance sheet. As of December 31, 2011 and 2010, approximately $1.4 million and $300,000, respectively, has been reimbursed to the Advisor. Upon completion of the public offering, any excess deferred offering costs will be charged back to the Advisor.

Income Taxes

To maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its taxable net income (excluding net capital gains) to its stockholders as well as comply with other requirements, including certain asset, income and stock ownership tests. Accordingly, the Company generally will not be subject to corporate U.S. federal income taxes to the extent that it annually distributes at least 90% of its taxable net income to its stockholders. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it is subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it fails its REIT qualification. Accordingly, the Company’s failure to qualify as a REIT could have a material adverse impact on its results of operations and amounts available for distribution to its stockholders.

The dividends-paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income as opposed to net income reported on the financial statements. Generally, taxable income differs from net income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.

The Company may elect to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”). In general, the Company’s TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. A TRS is subject to U.S. federal, state and local corporate income taxes.

F-11

The Company evaluates the benefits of tax positions taken or expected to be taken in its tax returns under a two-step recognition and measurement process. Only the largest amount of benefits from tax positions that will more likely than not be sustainable upon examination are recognized by the Company. The Company does not have any unrecognized tax benefits, nor interest and penalties, recorded in the Consolidated Balance Sheets or Consolidated Statements of Operations and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.

The Company is subject to examination by the U.S. Internal Revenue Service (“IRS”) and by the taxing authorities in other states in which the Company has significant business operations. The Company is not currently undergoing any examinations by taxing authorities. The Company may be subject to U.S. federal income tax and state/local income tax examinations for the years ended December 31, 2011 and 2010.

Earnings Per Share

Basic earnings per share are calculated on the basis of weighted-average number of common shares outstanding during the year. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock. Due to reported losses for the periods presented, the convertible shares discussed in Note 8 are not included in the diluted earnings per share calculation. All common shares and per common share information in the financial statements have been adjusted retroactively for the effect of four 1.5% stock distributions, declared on March 15, 2011 (to shareholders of record as of February 28, 2011), on June 15, 2011 (to shareholders of record as of May 31, 2011), on September 15, 2011 (to shareholders of record as of August 31, 2011), and on January 13, 2012 (to shareholders of record as of November 1, 2011).

Reclassification

Due from related parties of $48,000 was offset against due to related parties on the balance sheets for the year ended December 31, 2010 to conform with the 2011 presentation.

NOTE 3 – RENTAL PROPERTIES, NET

The Company’s investments in rental properties consisted of the following (in thousands):

	December 31,
	2011			2010
Land	$	2,727		$	968
Building and improvements		25,453			7,297
Furniture, fixtures and equipment		1,312			136
Construction in progress		12			—
		29,504			8,401
Less: accumulated depreciation		(955	)		(65	)
	$	28,549		$	8,336

Depreciation expense for the years ended December 31, 2011 and 2010 totaled approximately $890,000 and $65,000, respectively.

NOTE 4 – LOANS HELD FOR INVESTMENT, NET

On March 15, 2011, the Company purchased, at a discount, two non-performing promissory notes and two performing promissory notes (the “Notes”), each of which was secured by a first priority mortgage on a multifamily rental apartment community. The contract purchase price for the Notes was $3.1 million, excluding closing costs and was funded from the proceeds of the public offering. On August 2, 2011, the borrower of one of the non-performing promissory notes entered into a forbearance agreement with the Company and, on September 23, 2011, paid the Company a negotiated amount in satisfaction of the note in full (see Note 6). On August 18, 2011, the Company was the successful bidder at a foreclosure sale of the property collateralizing the second non-performing note; however, as of December 31, 2011, the Company had not yet taken title to the property since the borrower’s redemption period had not yet terminated. Possession was obtained in February 2012 (see Note 12). The accretable amount associated with the performing notes is $323,000 as of December 31, 2011.

F-12

On May 13, 2011, the Company purchased, at a discount, a non-performing promissory note (the “Cannery Note”), which is secured by a first priority mortgage on a multifamily rental apartment community in Dayton, Ohio. The contract purchase price for the Cannery Note was $7.1 million, excluding closing costs, and was funded from the proceeds of the public offering.

On October 21, 2011, the Company purchased, at a discount, a non-performing promissory note (the “Campus Club Note”), which is secured by a first priority mortgage on a multifamily rental apartment community in Tampa, Florida. The contract purchase price for the Campus Club Note was $8.3 million, excluding closing costs, and was funded from the proceeds of the public offering. The Company foreclosed on the Campus Club Note on February 9, 2012 and received title to the property on February 20, 2012.

The following table provides the aging of the Company’s loans held for investment (in thousands):

	Past Due
	30-89 days			90 - 180 days		Greater than 181 days			Total			Current			Total
December 31, 2011:
Unpaid loan balance	$	10,500		$	—	$	16,464		$	26,964		$	1,282		$	28,246
Purchase discount, net		(2,200	)		—		(7,723	)		(9,923	)		(344	)		(10,267	)
Capitalized loan costs, net		—			—		—			—			18			18
Total loans held for investment, net	$	8,300		$	—	$	8,741		$	17,041		$	956		$	17,997
December 31, 2010:
Unpaid loan balance	$	—		$	—	$	6,250		$	6,250		$	—		$	6,250

The following table provides information about the credit quality of the Company’s loans held for investment, net, (in thousands):

	Loans
December 31, 2011:
Performing	$	956
Nonperforming		17,041
Total	$	17,997
December 31, 2010:
Nonperforming	$	6,250
Total	$	6,250

The Company has individually evaluated each loan and determined that there were no impairments as of December 31, 2011 and 2010. Accordingly, there were no allowances for credit losses or charge-offs as of December 31, 2011 and 2010. One of the Company’s two performing promissory notes matured in December 31, 2011 and the balance of $238,000 was not paid in full and is currently in default. The borrower and the Company entered into a forbearance agreement in January 2012. This forbearance agreement is considered a troubled debt restructuring. The borrower has continued to pay the debt service payments as defined in the forbearance agreement.

NOTE 5 – ACQUISITIONS AND FORECLOSURES

107^th Avenue – Omaha Nebraska

On August 26, 2010, the Company purchased a residential apartment complex located in Omaha, Nebraska for a purchase price of $225,000. The Company paid an acquisition fee of $5,000, or 2% of the purchase price and closing costs, to its Advisor.

F-13

The following table presents the estimated fair value of the assets acquired (in thousands):

Rental property:
Land	$	25
Building		196
		221
Acquired intangibles – in-place leases		4
Cash paid for acquired rental property	$	225

Arcadia – Houston, Texas

On September 3, 2010, the Company purchased at a discount, a non-performing promissory note (the “Westhollow Note”) for a discounted purchase price of $7.8 million plus closing costs. This note was secured by a first lien mortgage on a 404-unit multifamily residential community known as Arcadia at Westheimer, or Arcadia, (formerly “Westhollow Apartments”), located in Houston, Texas. The Company paid an acquisition fee of $229,000, or 2% of the purchase price and closing costs, to its Advisor. Upon acquiring the note, the Company contacted the borrower but was unsuccessful in its attempts to either restructure the Westhollow Note or negotiate a discounted payoff. Subsequently, on October 5, 2010, the Company was the successful bidder at the trustee’s sale of the property and, as such, took title to Arcadia in satisfaction of the Westhollow Note. The Company’s bid equaled the carrying value of the Westhollow Note, which the Company believed to be a reasonable approximation of the fair value of Arcadia. The cost of this real estate investment was subsequently allocated to net tangible and intangible assets based on their relative fair values.

The following table presents the estimated fair value of Arcadia (in thousands), which was acquired in exchange for the Westhollow Note:

Rental property:
Land	$	943
Buildings		6,599
		7,542
Acquired intangibles – in-place leases		258
Fair value assigned	$	7,800

Town Park – Birmingham, Alabama

On December 21, 2010, the Company purchased, at a discount, two non-performing promissory notes (the “Crestwood Notes”) both secured by a first lien mortgage on a multifamily community known as Town Park Apartments (formerly Crestwood Crossings Apartments). The contract purchase price for the Crestwood Notes was $6.3 million plus closing costs. The Company paid an acquisition fee of $125,000, or 2% of the purchase price and closing costs, to its Advisor. Upon acquiring the Crestwood Notes, the Company attempted to negotiate the restructuring or discounting of the notes with the borrower. After these efforts proved unsuccessful, the Company commenced foreclosure proceedings and took title to the property on March 2, 2011.

The following table presents the estimated fair value (in thousands) of Town Park, which was acquired in exchange for the Crestwood Notes:

Rental property:
Land	$	596
Buildings		5,367
		5,963
Acquired intangibles – in-place leases		287
Fair value assigned	$	6,250

Iroquois Apartments – Philadelphia, Pennsylvania

On June 17, 2011, the Company purchased, at a discount, a non-performing promissory note, (the “Iroquois Note”), which was secured by a first priority mortgage on a multifamily rental apartment community known as the Iroquois Apartments, located in Philadelphia, Pennsylvania. The contract purchase price for the Iroquois Note was $12.0 million, excluding closing costs, and was funded in part from the proceeds of the public offering and from a $1.35 million bridge loan provided by the Advisor which was repaid in full on June 28, 2011. The Company paid an acquisition fee of

F-14

$324,000, or 2% of the purchase price and closing costs, to its Advisor. Upon acquiring the Iroquois Note, the Company attempted to negotiate the restructuring or discounting of the note with the borrower. After these efforts proved unsuccessful, the Company commenced foreclosure proceedings. The Company obtained title to the property on August 2, 2011 and took possession in October 2011.

The following table presents the estimated fair value (in thousands) of the Iroquois Apartments and related acquired net assets, which were acquired in exchange for the Iroquois Note:

Rental property:
Land	$	1,163
Buildings		9,913
		11,076
Acquired intangibles – in-place leases		535
Cash		462
Accounts receivable		8
Prepaid real estate tax		60
Accounts payable		(44	)
Security deposit liability		(97	)
Fair value assigned	$	12,000

NOTE 6 – DISPOSITIONS

On March 15, 2011, the Company acquired a non-performing promissory note secured by a mortgage encumbering a 32-unit apartment community located in Oberlin, Ohio (the “Oberlin Note”). The purchase price for the Oberlin Note was $565,000. The Oberlin Note matured on March 5, 2011 and was in default at the time of the Company’s acquisition. The outstanding balance on the Oberlin Note at the time of the Company’s acquisition was $920,000.

On August 2, 2011, the Company entered into a forbearance agreement with the borrower on the note to allow the borrower more time to refinance the property. In September 2011, the borrower paid $815,000 to the Company in full settlement of the Oberlin Note. The net gain recognized by the Company after fees and costs totaled $250,000.

NOTE 7 – IDENTIFIED INTANGIBLE ASSETS, NET

Identified intangible assets, net, consisted of acquired in-place leases totaling $1,083,000 and $262,000 as of December 31, 2011 and 2010, respectively, net of accumulated amortization of $807,000 and $133,000. The unamortized intangible assets represent antennae leases and rental leases. The weighted average remaining life of the antennae leases is 167 months as of December 31, 2011. The weighted-average remaining life of the rental leases is one month and three months as of December 31, 2011 and 2010, respectively. Expected amortization expense for the antennae leases is $16,000 annually through 2025. Expected amortization expense for the rental leases is $48,000 for the three months ended March 31, 2012 and none thereafter.

For the years ended December 31, 2011 and 2010, amortization expense totaled $674,000 and $133,000, respectively.

NOTE 8 – EQUITY

Preferred Stock

The Company’s charter authorizes the Company to issue up to 10.0 million shares of its $0.01 par value preferred stock. As of December 31, 2011 and 2010, there were no shares of preferred stock issued and outstanding.

Common Stock

Through December 31, 2011, the Company had issued an aggregate of 1,283,727 shares of its $0.01 par value common stock in connection with its initial private offering, and 7,165,942 shares of its common stock (including stock dividends) in connection with its currently ongoing public offering. On June 15, 2010, the Advisor converted 4,500 common shares into 45,000 shares of the Company’s convertible stock, therefore, 8,454,169 shares of common stock remain outstanding as of December 31, 2011.

F-15

Convertible stock

As of December 31, 2011 and 2010, the Company had 50,000 shares of $0.01 par value convertible stock outstanding. The Advisor owns 49,063 shares, and outside investors own 937 shares. In 2011 and 2010, the Advisor granted 204 and 17,346 shares of its initial investment of 49,063 shares in convertible stock to employees of RAI which shares are vesting ratably over three years. As of December 31, 2011, 5,613 of these shares have vested. The convertible stock will be of no value unless the Company’s common stockholders realize or have an opportunity to realize a stated minimum return as a result of the Company’s cumulative distributions or the trading price of its shares on a national securities exchange. The convertible stock will convert into shares of the Company’s common stock upon the occurrence of one of two events: first, if the Company has paid distributions to common stockholders that in the aggregate equal 100% of the price at which the Company originally sold the shares plus an amount sufficient to produce a 10% cumulative, non-compounded annual return on the shares at that price; and secondly, if the Company lists its common stock on a national securities exchange and, on the 31^st trading day after listing, the Company’s value based on the average trading price of its common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold.

Distribution Reinvestment Plan

The Company is also offering up to 7.5 million common shares pursuant to its distribution reinvestment plan at a purchase price initially equal to $9.50 per share. As of December 31, 2011, no shares have been purchased under this plan.

Distributions

The Company has declared four distributions of .015 shares each of its common stock, or 1.5% of the outstanding shares of common stock, to its stockholders of record at the close of business on February 28, May 31, August 31, and November 1, 2011. The stock was issued to stockholders on March 15, June 15, September 15, 2011 and January 13, 2012, respectively. In connection with these stock distributions, the Company increased the accumulated deficit by $2.1 million.

NOTE 9 – RELATED PARTY TRANSACTIONS

In the ordinary course of its business operation, the Company has ongoing relationships with several related parties. Payables to such related parties are summarized in the following table (in thousands):

	December 31,
	2011		2010
Due to (from) related parties:
Advisor and its affiliates	$	3,776	$	3,659
Resource Securities		152		(14	)
	$	3,928	$	3,645

Relationship with the Advisor

In September 2009, the Company entered into an Advisory Agreement with its Advisor (the “Advisory Agreement”) under which the Advisor provides the Company with investment management, administrative and related services. The Advisory Agreement was amended in January 2010 and further amended in January 2011. The Advisory Agreement has a one-year term and will renew for an unlimited number of successive one-year terms upon the approval of the conflicts committee. Under the Advisory Agreement, the Advisor receives fees and is reimbursed for its expenses as follows:

The Company pays the Advisor an acquisition fee of 2.0% of the cost of investments acquired on behalf of the Company plus any capital expenditure reserves allocated, or the amount funded by the Company to acquire loans, including acquisition expenses and any debt attributable to such investments. For the years ended December 31, 2011 and 2010, the Advisor earned approximately $538,000 and $360,000, respectively, in acquisition fees, which were all paid to the Advisor as of December 31, 2011 and 2010, respectively.

The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 1.0% of the higher of the cost or the independently appraised value of each asset, without deduction for depreciation, bad debts or other non-cash reserves. The asset management fee is based only on the portion of the costs or value attributable to the Company’s investment in an asset if the Company does not own all or a majority of an asset and does not manage or control the asset.

F-16

For the years ended December 31, 2011 and 2010, the Advisor earned approximately $343,000 and $29,000, respectively, in asset management fees. As of December 31, 2011 and 2010, a total of $7,000 and $0 of asset management fees due to the Advisor was unpaid.

The Company pays the Advisor a disposition fee in connection with of the sale of a property equal to the lesser of one half of the aggregate brokerage commission paid, or if none is paid, 2.75% of the contract sales price. No disposition fees have been paid for the years ending December 31, 2011 and 2010, as the Company did not dispose of any of its real estate properties.

The Company pays the Advisor a debt financing fee upon the Company’s obtaining any debt financing for which the Advisor provided substantial services equal to 0.5% of the amount available under the obtained financing. The Company entered into a secure revolving credit facility in December 2011; however, the collateral pool was not added until January 2012. Therefore, no debt financing fees were paid for the years ended December 31, 2011 and 2010.

The Company paid to the Advisor a non accountable expenses reimbursement in an amount equal to 2.5% of the gross proceeds raised in the Company’s initial private offering and all of the expenses paid or incurred by the Advisor on behalf of the Company in connection with the services provided to the Company prior to the effective date of the public offering. These reimbursements paid to the Advisor totaled $0 and $315,000 for the years ended December 31, 2011 and 2010, respectively. As of both December 31, 2011 and 2010, none of these reimbursements were unpaid.

The Company also pays directly or reimburses the Advisor for all of the expenses paid or incurred by the Advisor or its affiliates on behalf of the Company or in connection with the services provided to the Company in relation to its ongoing public offering. This includes all organization and offering costs of up to 2.5% of gross offering proceeds, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer manager fee) to exceed 2.5% of gross offering proceeds as of the date of such reimbursement. For the years ended December 31, 2011 and 2010, such organization and offering costs paid by the Advisor totaled approximately $600,000 and $1.1 million, respectively. As of December 31, 2011 and 2010, a total of $1.9 million and $2.7 million, respectively, of these advances from the Advisor for organization and offering costs were unpaid and due to the Advisor. As of December 31, 2011 and 2010, amounts paid for organization and offering costs directly from the Company totaled $1.4 million and $400,000, respectively.

This expense reimbursement also includes expenses the Advisor incurs in connection with providing services to the Company, including the Company’s allocable share of costs for Advisor personnel and overhead, out of pocket expenses incurred in connection with the selection and acquisition of properties or other real estate related debt investments, whether or not the Company ultimately acquires the investment. However, the Company will not reimburse the Advisor or its affiliates for employee costs in connection with services for which the Advisor earns acquisition or disposition fees. For the years ended December 31, 2011 and 2010, the Advisor has advanced funds to the Company for these operating expenses of $800,000 and $700,000, respectively. As of December 31, 2011 and 2010, a total of $1.75 million and $900,000, respectively, of these advances from the Advisor for operating costs were unpaid and due to the Advisor.

On June 15, 2010, the Advisor converted 4,500 shares of the Company’s common stock into 45,000 shares of convertible stock and purchased 4,068 additional shares of convertible stock for $1 per share. In March 2011, five convertible shares were purchased by an eligible investor thereby reducing the Advisor’s balance by these shares. The Advisor has granted 17,550 shares of the convertible stock to employees of RAI, of which 505 shares were forfeited during 2011. These shares will vest ratably over the next three years. As of December 31, 2011, 5,613 of these shares have vested.

On June 17, 2011, the Company entered into a $1.4 million bridge loan with the Advisor, at an interest rate of 6.5% with a maturity of six months, in order to fund the purchase of the Iroquois Note. The loan plus interest of $3,000 were repaid in full on June 28, 2011. The Company also paid the Advisor a 1% origination fee of $14,000 for arranging this financing.

The Company pays the Advisor a debt servicing fee of 2.75% on payments received. For the years ended December 31, 2011 and 2010, the Advisor earned approximately $27,000 and $0, respectively in debt servicing fees. As of both December 31, 2011 and 2010, no debt servicing fees were owed to the Advisor.

F-17

Relationship with Resource Real Estate Opportunity Manager

The Company entered into a management agreement with Resource Real Estate Opportunity Manager, LLC (the “Manager”), an affiliate of the Advisor, pursuant to which the Manager manages real estate properties and real estate-related debt investments and coordinates the leasing of, and manages construction activities related to, some of the Company’s real estate properties. Pursuant to the terms of the management agreement, the Manager is entitled to specified fees upon the provision of certain services, including payment of a construction management fee and property management/debt servicing fees. For the years ended December 31, 2011 and 2010, the Manager earned $300,000 and $48,000, respectively, in property management fees. As of December 31, 2011 and 2010, a total of $46,000 and $16,000, respectively, of those fees was unpaid and due to the Manager.

During the ordinary course of business, the Manager or other affiliates of RAI may pay certain shared operating expenses on behalf of the Company. Reimbursable expenses payable to the Manager or its affiliates as of December 31, 2011 and 2010 totaled $73,000 and $17,000, respectively. These reimbursable amounts are non-interest bearing and due on demand.

Relationship with Resource Securities

The Company executed a dealer manager agreement with Resource Securities, Inc. (“Resource Securities,” formerly Chadwick Securities, Inc.), an affiliate of the Advisor, pursuant to which Resource Securities has been engaged to serve as the Company’s dealer manager. Resource Securities is responsible for marketing the Company’s shares in its public offering. Pursuant to the terms of the dealer manager agreement, the Company pays Resource Securities a selling commission of up to 7% of gross public offering proceeds and a dealer manager fee of up to 3% of gross offering proceeds.

Resource Securities reallows all selling commissions earned and up to 1.0% of the dealer manager fee as a marketing fee to participating broker-dealers. No selling commissions or dealer manager fees are earned by Resource Securities in connection with sales under the distribution reinvestment plan. Additionally, the Company may reimburse Resource Securities for bona fide due diligence expenses.

For the years ended December 31, 2011 and 2010, Resource Securities earned selling commissions and dealer manager fees of approximately $5.5 million and $1.1 million, respectively. There were no due diligence expense reimbursements for either of the years ended December 31, 2011 and 2010. As of December 31, 2011, a total of $152,000 of these fees were unpaid and due to Resource Securities. As of December 31, 2010, $34,000 in fees were unpaid, but were exceeded by a receivable from Resource Securities of $48,000, for a net balance due from Resource Securities of $14,000.

Relationship with Other Related Parties

The Company has also made payment for legal services to the law firm of Ledgewood P.C. (“Ledgewood”). Until 1996, the Chairman of RAI was of counsel to Ledgewood. In connection with the termination of his affiliation with Ledgewood and its redemption of his interest, the Chairman continues to receive certain payments from Ledgewood. Until March 2006, a current executive of RAI was the managing member of Ledgewood. This executive remained of counsel to Ledgewood through June 2007, at which time he became an Executive Vice President of RAI. In connection with his separation, this executive is entitled to receive payments from Ledgewood through 2013. For the years ended December 31, 2011 and 2010, the Company paid legal fees to Ledgewood totaling $31,000 and $7,600, respectively.

The Company utilizes the services of Graphic Images, LLC (“Graphic Images”), a printing company, whose principal owner is the father of RAI’s Chief Financial Officer. The Company paid to Graphic Images $335,000 and $152,000 for printing services during the years ended December 31, 2011 and 2010, respectively.

NOTE 10 – FAIR VALUE MEASURES AND DISCLOSURES

In analyzing the fair value of its investments accounted for on a fair value basis, the Company follows the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The hierarchy followed defines three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.

F-18

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or can be corroborated with observable market data for substantially the entire contractual term of the asset.

Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter; depending on various factors, it is possible that an asset may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.

Loans held for investment, net, are measured at fair value on a non-recurring basis. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Given the date of the acquisition of the Cannery Note and the Campus Club Note, the carrying values or purchase prices of the notes of $7.1 million and $8.3 million, respectively, approximates the discounted cash flows.

The following table presents information about the Company’s loans held for investment, net, measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Level 1		Level 2		Level 3		Total
December 31, 2011:
Assets:
Loans held for investment, net	$	—	$	—	$	17,997	$	17,997
December 31, 2010:
Assets:
Loans held for investment, net	$	—	$	—	$	6,250	$	6,250

The following table presents additional information about assets which are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs (in thousands):

	Level 3
Beginning balance, January 1, 2010	$	—
Purchases		14,247
Level 3 loans converted to property at foreclosure		(7,997	)
Beginning balance, January 1, 2011		6,250
Purchases		30,538
Level 3 loans converted to property at foreclosure		(18,250	)
Level 3 loans paid off		(565	)
Principal payments		(24	)
Interest accretion		48
Ending balance, December 31, 2011	$	17,997

NOTE 11 – LINE OF CREDIT

On December 2, 2011, Resource Real Estate Opportunity OP, LP (“Resource OP”), the Company’s operating partnership entered into a secured revolving credit facility (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”), as lender. Under the Credit Facility, the Company may borrow up to $25.0 million (the “Facility Amount”). Draws under the Credit Facility will be secured by those multifamily properties directly owned by the Company’s subsidiaries which it has elected to add to the borrowing base. The proceeds of the Credit Facility may be used by the Company for working capital, property improvements and other general corporate purposes.

F-19

The entire unpaid principal balance of all borrowings under the Credit Facility and all accrued and unpaid interest thereon will be due and payable in full on December 2, 2014, which date may be extended to December 2, 2015 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed under the Credit Facility. The Company may borrow under the Credit Facility at a rate equal to LIBOR plus 3.0%. In addition, it has incurred certain closing costs in connection with the Credit Facility, including a loan fee equal to 0.375% of the Facility Amount, which fee was paid to Bank of America. The Company will be required to make monthly interest-only payments once it draws upon the Credit Facility. The Company also may prepay the Credit Facility in whole or in part at any time without premium or penalty.

Resource OP’s obligations with respect to the Credit Facility are guaranteed by the Company, pursuant to the terms of a guaranty dated as of December 2, 2011 (the “Guaranty”). The Credit Facility and the Guaranty contain, among others, the following restrictive covenants:

• The Company must maintain a minimum tangible net worth equal to at least (i) 200% of the outstanding principal amount of the Credit Facility and (ii) $20 million.

• The Company must also maintain unencumbered liquid assets with a market value of not less than the greater of (i) $5 million or (ii) 20% of the outstanding principal amount of the Credit Facility.

• The Company may not incur any additional secured or unsecured debt without Bank of America’s prior written consent and approval, which consent and approval is not to be unreasonably withheld.

The Company is currently in compliance with all such covenants. Although it expects to remain in compliance with these covenants for the duration of the term of the Credit Facility, depending upon its future operating performance, capital raising success, property and financing transactions and general economic conditions, it cannot assure you that it will continue to be in compliance. As of December 31, 2011, the Company has not drawn any funds from the Credit Facility.

NOTE 12 – DEFERRED FINANCING COSTS

Deferred financing costs include unamortized costs incurred to obtain financing which are being amortized over the term of the related debt. Accumulated amortization as of December 31, 2011 and December 31, 2010 was approximately $6,000 and $0, respectively. Estimated amortization expense of the existing deferred financing costs for the years ending December 31 are as follows (in thousands):

2012	$	76
2013		76
2014		70
	$	222

NOTE 13 – OPERATING EXPENSE LIMITATION WAIVER

Under its charter, the Company is required to limit its total operating expenses to the greater of 2% of its average invested assets or 25% of its net income for the four most recently completed fiscal quarters, as these terms are defined in its charter, unless the conflicts committee of the Company’s Board of Directors has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expense reimbursements for the four fiscal quarters ended December 31, 2011 exceeded the charter imposed limitation; however, the conflicts committee determined that the relationship of the Company’s operating expenses to its average invested assets was justified for these periods given the costs of operating a public company and the early stage of the Company’s operations

NOTE 14 – SUBSEQUENT EVENTS

From January 1, 2012 to March 26, 2012, the Company raised approximately $19.2 million in offering proceeds through the issuance of approximately 1.9 million shares of common stock under its initial public offering. As of March 26, 2012, approximately 66.0 million shares remained available for sale to the public under the initial public offering, exclusive of shares available under the Company’s distribution reinvestment plan.

On January 3, 2012, a fire substantially damaged three units at Town Park. Town Park was insured for the damage, estimated at approximately $350,000. Expected insurance proceeds to be awarded have not yet been determined.

F-20

On January 31, 2012, the Company added Arcadia and Town Park to the collateral pool of the Credit Facility and drew $650,000 against the Facility Amount. On February 29, 2012, the Company repaid $250,000 of this amount.

On February 9, 2012, the Company was the successful bidder at the foreclosure sale of the property collateralized by the Campus Club Note. Prior to this sale, the Company was unsuccessful in any attempt to restructure the loan or negotiate a discounted payoff of the Note. Title to Campus Club was transferred to the Company in on February 20, 2012.

On February 10, 2012, the Company’s Board of Directors declared a stock distribution of 0.015 shares of common stock, or 1.5% of each outstanding share of common stock, to the stockholders of record at the close of business on March 31, 2012. Such stock distributions are to be paid on April 13, 2012.

On February 18, 2012, the redemption period relating to the second non-performing note terminated. The Company took possession of the property on February 20, 2012.

On March 21, 2012, the Company acquired the Deerfield non-performing note for $10.3 million. The note is collateralized by a property, located in Hermantown, Minnesota, is a 166-unit multifamily residential rental property.

On March 27, 2012, the Company acquired The Bristol apartments for $11.4 million. The property, located in Houston, Texas is an 856-unit multifamily residential rental property.

The Company has evaluated subsequent events and determined that no events other than the above have occurred which would require an adjustment to the consolidated financial statements.

F-21

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

SCHEDULE III

Real Estate and Accumulated Depreciation

December 31, 2011

(dollars in thousands)

Column A	Column B		Column C		Column D		Column E		Column F			Column G		Column H		Column I
Description	Encumbrances		Initial cost to Company		Cost capitalized subsequent to acquisition		Gross Amount at which carried at close of period		Accumulated Depreciation			Date of Construction		Date Acquired		Life on which depreciation in latest income is computed
			Buildings and Land Improvements		Improvements Carrying Costs		Buildings and Land Improvements Total
Real estate owned:
Residential	$	—	$	221	$	15	$	236	$	(11	)		1961		08/26/2010		3 - 27.5 years
Omaha, NE
Residential		—		7,542		3,248		10,790		(547	)		1978		10/05/2010		3 - 27.5 years
Houston, TX
Residential		—		5,963		1,238		7,201		(244	)		1980		03/02/2011		3 - 27.5 years
Birmingham, AL
Residential		—		11,076		201		11,277		(153	)		1961		08/02/2011		3 - 27.5 years
Philadelphia, PA
	$	—	$	24,802	$	4,702	$	29,504	$	(955	)

	Year Ended December 31,
	2011		2010
Balance, beginning of the period	$	8,401	$	—
Additions during period:
Acquisitions		17,039		7,763
Improvements, etc.		4,064		638
Balance, at close of period	$	29,504	$	8,401

F-22

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

SCHEDULE IV

Mortgage Loans on Real Estate

December 31, 2011

(in thousands)

Column A	Column B	Column C	Column D	Column E	Column F		Column G		Column H
Description	Interest rate	Final maturity date	Periodic payment term	Prior liens	Face amount of mortgages		Carrying amount of mortgages		Principal amount of loans subject to delinquent principal or interest
Residential Inkster, MI	Fixed interest rate of 6.25%	11/30/2010	n/a	n/a	$	2,574	$	1,641
Residential Columbia City, IN	Fixed interest rate of 7.5%	10/28/2021	n/a	n/a		1,058		721
Residential Kalamazoo, MI	Variable interest rate between 7.0 and 7.39%	12/30/2013	n/a	n/a		242		235
Residential Dayton, OH	Fixed interest rate of 5.125%	01/01/2045	n/a	n/a		13,890		7,100
Residential Tampa, FL	Fixed interest rate of 6.18%	07/01/2016	n/a	n/a		10,500		8,300
					$	28,264	$	17,997

	Year Ended December 31, 2011
Balance, beginning of the period	$	6,250
Additions:
New loans		17,997
Reductions:
Foreclosures		(6,250	)
Balance, end of the period	$	17,997

F-23