4. MORTGAGE NOTES PAYABLE

Mortgage notes payable as of September 30, 2014 and December 31, 2013 consisted of the following:

Property Securing Mortgage Note	Location	Monthly Payment		Interest Rate			Maturity Date	September 30, 2014		December 31, 2013
Havana/Parker Complex (1)	Aurora, Colorado	$	24,330		6.51	%	July 1, 2016	$	3,098,780	$	3,098,780
Garden Gateway Plaza	Colorado Springs, Colorado		42,383		5.00	%	February 5, 2020		7,003,156		7,119,544
Waterman Plaza	San Bernardino, California		25,995		6.50	%	September 1, 2015		3,391,155		3,457,973
Sparky's Palms Self-Storage	Thousand Palms, California		28,865	Variable rate ranging from 5.5% to 10.5%, currently 5.5%			March 1, 2034		4,127,864		4,215,349
Sparky's Hesperia East Self-Storage	Hesperia, California		5,171	Variable rate, currently 4.75%			December 18, 2022		835,950		890,774
Sparky's Rialto Self-Storage	Rialto, California		19,323		4.75	%	May 15, 2023		2,130,979		2,166,791
Genesis Plaza	San Diego, California		28,219		4.65	%	September 1, 2015		4,523,780		4,618,147
Executive Office Park	Colorado Springs, Colorado		26,962		5.79	%	July 1, 2025		4,396,657		4,447,699
Dakota Center	Fargo, North Dakota		36,031		4.74	%	May 31, 2016		11,033,087		5,417,950
Yucca Valley Retail Center	Yucca Valley, California		23,919		5.62	%	April 11, 2015		3,011,523		3,095,974
Rangewood Medical Office Building	Colorado Springs, Colorado		9,858		4.95	%	January 1, 2019		1,108,586		1,155,305
Regatta Square	Denver, Colorado		7,562		4.95	%	January 1, 2019		1,222,266		1,244,615
Port of San Diego Complex	San Diego, California		61,573		4.75	%	March 5, 2020		10,429,338		10,608,385
Morena Office Center	San Diego, California		13,896		4.50	%	June 1, 2021		2,366,704		2,411,282
Pacific Oaks Plaza	Escondido, California		9,450		4.50	%	June 1, 2021		1,609,338		1,639,658
Shoreline Medical Office Building	Half Moon Bay, California		26,043		5.10	%	June 1, 2022		3,875,133		3,959,914
Sparky's Palm, Joshua and Sunrise Self-Storage	Highland, Hesperia and Thousand Palms, California, respectively		42,788		4.70	%	December 6, 2022		8,018,686		8,116,028
The Presidio	Colorado Springs, Colorado		36,701		5.60	%	January 6, 2015		5,393,008		5,492,375
Sparky's Lancaster Self-Storage	Lancaster, California		13,200		5.00	%	June 1, 2020		1,919,652		1,965,504
Fontana Medical Plaza	Fontana, California		11,479		4.75	%	August 28, 2019		1,954,607		1,990,880
Bismarck Office Building	Bismarck, North Dakota		42,735		6.12	%	October 1, 2016		3,337,405		-
Union Terrace	Lakewood, Colorado		33,441		4.50	%	August 5, 2024		6,600,000		-
Subtotal, NetREIT, Inc. properties									91,387,654		77,112,927

2 Model Homes (2)	CA		5,062		5.50	%	February 10, 2014		329,840		1,222,266
3 Model Homes	TX		2,799		5.75	%	December 15, 2015		278,314		778,823
7 Model Homes	TX, NC		6,016		5.75	%	December 15, 2015		-		639,007
6 Model Homes	TX, NC		5,012		5.87	%	April 15, 2017 to June 15, 2017		508,917		3,212,444
8 Model Homes	AZ, CA, NJ		13,758		5.48	%	December 15, 2017		1,505,683		1,777,808
10 Model Homes	PA, TX		14,561		5.08	%	December 15, 2017		1,411,063		1,343,658
7 Model Homes	TX		8,047		5.00	%	January 15, 2018 to December 15, 2018		934,187		593,505
7 Model Homes	TX		9,204	5.50% to 5.84%			June 30, 2014 to January 15, 2018		671,238		2,871,286
8 Model Homes	AZ, CA, NJ, TX		13,181	5.07% to 5.13%			December 15, 2017 to July 15, 2018		1,375,537		-
2 Model Homes	PA , TX		2,048		5.50	%	February 13, 2019		277,096		-
2 Model Homes	PA		2,445		5.13	%	August 15, 2019		722,928		-
Subtotal, Model Home properties									8,014,803		12,438,797

								$	99,402,457	$	89,551,724

In the quarter ended September 30, 2014, the Company determined that an additional impairment existed on its Havana Parker property and recorded an asset impairment of $950,000. At September 30, 2014, the book value of the property was $2.3 million and the property was encumbered with a CMBS loan with a balance of $3.1 million and a maturity date of July 1, 2016. The Company commenced paying the net cash flow from the property in order to get the loan assigned to the proper Servicing Agent qualified to negotiate a modification of the loan. The net cash flow is substantially less than the monthly payment due. The Company has made reduced mortgage payments for the previous eleven (11) mortgage payments. In May 2013, months before the decision to pay only the net cash flow generated by the Property, the Company engaged a third party consultant with experience in modification of CMBS loans to have the terms of the loan modified by the lender on the property. Negotiations with the lender are currently ongoing. However, on March 4, 2014, the Company received a notice of foreclosure from the lender stating that the covenants of the deed of trust have been violated for failure to pay principal and interest when due together with all other payments provided for in the evidence of debt secured by the deed of trust and other violations. The date of any foreclosure sale has been extended while negotiations are underway. We expect that the debt balance will be reduced, the interest rate will be reduced significantly and an option to extend the maturity date of the loan for an addition year. We also expect we will be required to bring the unpaid accrued interest payments current. We have evaluated the potential loss contingency in accordance with generally accepted accounting principles and concluded that it is not likely at this time that the Company will experience further losses. However, if the negotiations are not successful, the Lender may move forward with the court action and foreclose on the property. The loan on the Havana Parker property is non-recourse. Except as noted above, the Company is in compliance with all conditions and covenants of its mortgage notes payable. The Company has evaluated the potential loss contingency in accordance with generally accepted accounting principles and concluded that it is not likely at this time that the Company will experience further losses. However, if the negotiations are not successful, the Lender may move forward with the court action and foreclose on the property. The loan on the Havana Parker property is non-recourse. Except as noted above, the Company is in compliance with all conditions and covenants of its mortgage notes payable.

2.	The Company is working with the lender to extend the maturity date of this loan. The Company anticipates that the lender will extend the due date of these loans until such time as the model home securing the loan is sold.

From the time that the Company commenced paying only net cash flow, scheduled payments through September 30, 2014 totalled approximately $402,000 and the Company paid approximately $48,000. The Company has accrued all interest and late charges due under the loan through September 30, 2014.

Scheduled principal payments of mortgage notes payable as of September 30, 2014 are as follows:

Years Ending:	NetREIT, Inc. Principal Payments		Model Home Properties Principal Payments		Scheduled Principal Payments
Three months remaining in 2014	$	581,439	$	116,919	$	698,358
2015		17,790,064		598,224		18,388,288
2016		7,641,113		1,092,316		8,733,429
2017		1,554,170		1,682,409		3,236,579
2018		5,670,276		2,395,120		8,065,396
Thereafter		58,150,592		2,129,815		60,280,407
Total	$	91,387,654	$	8,014,803	$	99,402,457