SecProbe.io

CORRESP
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Filed by Bowne Pure Compliance

    RUSHALL & McGEEVER

    BRUCE J. RUSHALL

    A PROFESSIONAL LAW CORPORATION

    TELEPHONE: (760) 438-6855

    EILEEN L. McGEEVER

    6100 INNOVATION WAY

    FACSIMILE: (760) 438-3026

    LUCI M. MONTGOMERY

    CARLSBAD, CALIFORNIA 92009

    E-MAIL: rm@rushallmcgeever.com

March
 6, 2009

United States Securities and Exchange Commission

450 Fifth Street NW

Mail Stop 4561

Washington, D.C. 20549

    Attn:

    Ms. Kristina Aberg, Attorney-Advisor

    Ms. Jaime John, Staff Accountant

    Re:

    NetREIT

    Form 10

    Filed May 6, 2008

    File No. 001-39049

Ladies and Gentlemen:

By this letter, Registrant requests comments and guidance regarding Registrant’s proposed
responses below to certain comments in the Staff’s letter of February 2, 2009 regarding the
above-referenced Form 10 filing. The proposed responses below are presented in the same numbers as
the Staff’s comments in that letter.

Once the Staff confirms Registrant’s proposed restatement of its financial statements,
Registrant will file an initial Form 10 as a 10-12G submission in response to Comment 1 of the
Staff’s letter and a complete response to the Staff’s letter.

General

Management’s Discussion and Analysis of Financial Condition...page 17

RESPONSE
TO COMMENT 1. Registrant proposes to add the following phrase “see Item 1A above” to complete the sentence.

    ITEM 2.
     FINANCIAL INFORMATION

    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to our financial statements and should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this report. Statements
contained in this “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” that are not historical facts may be forward-looking statements. Such statements are
subject to certain risks and uncertainties, which could cause actual results to materially differ
from those projected. Some of the information presented is forward-looking in nature, including
information concerning projected future occupancy rates, rental rate increases, project development
timing and investment amounts. Although the information is based our current expectations, actual
results could vary from expectations, actual results could vary from expectations stated in this
report. Numerous factors will affect our actual results, some of which are beyond our control.
These include the timing and strength of national and regional economic growth, the strength of
commercial and residential markets, competitive market conditions, fluctuations in availability and
cost of construction materials and labor resulting from the effects of worldwide demand, future
interest rate levels and capital market conditions. You are cautioned not to place undue reliance
on this information, which speaks only as of the date of this report. We assume no obligation to
update publicly any forward-looking information, whether as a result of new information, future
events or otherwise, except to the extent we are required to do so in connection with our ongoing
requirements under federal securities laws to disclose material information. For a discussion of
important risks related to our business, and an investment in our securities, including risks that
could cause actual results and events to differ materially from results and events referred to in
the forward-looking information. See Item 1A for a discussion of
material risks.

Overview and Background, page 17

RESPONSE
TO COMMENT 5. Registrant
proposes to add the following language to present a more balanced discussion.

OVERVIEW AND BACKGROUND

We operate as a self-administered
real estate investment trust (“REIT”) headquartered in San
Diego County, California, formed to own and operate income producing real estate properties. During the years ended December 31, 2007 and 2006, we built our operational and administrative
infrastructure, including hiring a staff of quality employees, to give us the capability to become
a large real estate investing company. In the process, our general and administrative expenses have
increased at a greater rate than our operating income, resulting in losses from continuing
operations of $775,365 and $455,506 in 2007 and 2006, respectively. However, as the Company
continues to make additional property acquisitions and we expect revenues less rental operating costs
to increase at a greater rate than our general and administrative
costs. Therefore, we expect our loss
from continuing operations to decline in the future. During the last two years we experienced fast growth, having increased
capital by approximately 1,200% to $29.3 million at December 31, 2007 from
$2.2 million at December 31, 2005, and our investment
portfolio by approximately 1,100% to $45.9 million at December 31, 2007 from
$3.8 million at December 31, 2005. During
these two years, the primary source of the increase in capital was
the proceeds of approximately $26.7 million from
the sale of additional equity securities. The increase in our investment portfolio was
also funded from proceeds from mortgage notes payable of
approximately $22.7 million.

At December 31, 2007, we owned 2 office building properties, 2 retail strip centers, 1 single user
retail store, 1 residential apartment building, 2 self storage properties and one mortgage loan.
Our properties are located primarily in Southern California and Colorado. These areas have above
average population growth. We do not develop properties but acquire properties that are stabilized
or that we anticipate will be stabilized within one year of operations. We consider a property to
be stabilized once it has achieved an 80% occupancy rate for a full year as of January 1, or has
been operating for three years. Our geographical clustering of assets enables us to reduce our
operating costs through economies of scale by servicing a number of properties with less staff. We
actively seek potential acquisitions through regular communications with real estate brokers and
other third parties.

Most of our office and retail properties we currently own are leased to a variety of tenants
ranging from small businesses to large public companies, many of which do not have publicly rated
debt. We have in the past entered into, and intend in the future to enter into, purchase
agreements for real estate having net leases that require the tenant to pay all of the operating
expense (Net, Net, Net Leases) or pay increases in operating expenses over specific base years.
Most of our leases are for terms of 3 to 5 years with annual rental increases built into the
leases. Our residential and self storage properties that we currently own are rented pursuant to a
rental agreement that is for no longer than 6 months. Our self storage properties are located in
markets having other self storage properties. Competition with these other properties will impact
our operating results of these properties, which depends materially on our ability to timely lease
vacant self storage units, to actively manage unit rental rates, and our tenants’ ability to make
required rental payments. To be successful, we must be able to continue to respond quickly and
effectively to changes in local and regional economic conditions by adjusting rental rates of these
properties within their regional market in Southern California. We depend on advertisements,
flyers, websites, etc. to secure new tenants to fill any vacancies.

RUSHALL & McGEEVER

A PROFESSIONAL LAW CORPORATION

United States Securities and Exchange Commission

    Attn:

    Ms. Kristina Aberg, Attorney-Advisor

    Ms. Jaime John, Staff Accountant

March  6, 2009

Page 2

Liquidity and Capital Resources

Non-GAAP Supplemental Financial Measure: Funds from Operations (“FFO”), Page 26

RESPONSE
TO COMMENT 6. Registrant proposes to revise its FFO calculation table to exclude the 2007 gain on sale of
real estate of $2,886,131. With this change, Registrant’s calculation of FFO will comply with
NAREIT’s definition of FFO. Registrant will remove the $47,712 gain included in the 2006 as it was
incorrectly included. Registrant proposes to revise the totals in the table accordingly. As
revised, the table will have correct totals. Below is the proposed revised table.

Non-GAAP Supplemental Financial Measure: Funds From Operations (“FFO”)

Management believes that FFO is a useful supplemental measure of our operating performance. We
compute FFO using the definition outlined by the National Association of
Real Estate Investment Trusts (“NAREIT”). NAREIT defines
FFO as net income (loss) in accordance with GAAP,
plus depreciation and amortization of real estate assets (excluding amortization of deferred
financing costs and depreciation of non-real estate assets) reduced by gains and losses from sales
of depreciable operating property and extraordinary items, as defined by GAAP. Other REITs may use different methodologies for
calculating FFO, and accordingly, our FFO may not be comparable to other REITs.

Because FFO excludes depreciation and amortization, gains and losses from property dispositions
that are available for distribution to shareholders and extraordinary items, it provides a
performance measure that, when compared year over year, reflects the impact to operations from
trends in occupancy rates, rental rates, operating costs, development activities, general and
administrative expenses and interest costs, providing a perspective not immediately apparent from
net income. In addition, management believes that FFO provides useful information to the
investment community about our financial performance when compared to other REITs since FFO is
generally recognized as the industry standard for reporting the operations of REITs.

However, FFO should not be viewed as an alternative measure of our operating performance since it
does not reflect either depreciation and amortization costs or the level of capital expenditures
and leasing costs necessary to maintain the operating performance of our properties which are
significant economic costs and could materially impact our results from operations.

The following table presents our Funds from Operations, for the years ended December 31, 2007 and
2006:

    Year ended December 31,

    2007

    2006

    Net income (loss)

    $
    2,308,990

    $
    (331,515
    )

    Adjustments:

    Preferred stock dividends

    (87,850
    )

    (66,606
    )

    Depreciation and amortization of real estate assets

    970,478

    183,278

    Gain from
sale of real estate

    (2,886,131
    )

    —

    Funds From Operations

    $
    305,487

    $
    (214,843
    )

FFO should not be considered as alternative to net income (loss), as an indication of our
performance, nor is FFO indicative of funds available to fund our cash needs or our ability to make
distributions to our stockholders. In addition, FFO may be used to fund all or a portion of certain
capitalizable items that are excluded from FFO, such as capital expenditures and payments of debt,
each of which may impact the amount of cash available for distribution to our stockholders.

Our Objectives and Policies, page 38

RESPONSE TO COMMENT 7. Registrant proposes the following revision to “Our Objectives and Policies.”

Liquidity of our Common Stock

An investment in our common stock is illiquid. There is no public market for our common stock. We have no current plans to register our stock on a
national exchange or securities market. However, we intend to do so prior to 2014. Also we do not have a redemption or repurchase plan for our common stock and we have no current plans to offer one to our shareholders.

Registrant proposes to add the following revised Risk Factor.

It will be difficult for our shareholders to sell their common shares because there is currently no
public market for the shares and we do not intend to list the shares on a stock exchange. If our
shareholders are able to sell their shares, they will likely have to sell them at a substantial
discount.

There is no public market for our common shares, and we do not expect one to develop. We currently
have no plans to list the shares on a national securities exchange or over-the-counter market, or
to include the shares for quotation on any national securities market. Moreover, our charter
contains restrictions on the ownership and transfer of the shares, and these restrictions may
inhibit our shareholders’ ability to sell their shares. We do not have a share redemption program,
nor do we plan to adopt one in the near future. Any share redemption program we may adopt will be
limited in terms of the amount of shares that may be redeemed annually. Our board of directors will
be able to limit, suspend or terminate any share redemption program. It will probably be difficult
for our shareholders to sell their shares promptly or at all. If our shareholders are able to sell
their shares, they likely will only be able to sell them at a substantial discount from the price
they paid. In part, this is because the amount of funds available for investment we received when
we sold their shares was reduced by our payment of our sales costs, including selling commissions.
Until our investments increase in value to compensate for these costs and expenses, which may not
occur, it is unlikely that our shareholders will be able to sell their shares, pursuant to any
share redemption program or otherwise, without incurring a substantial loss. We cannot assure that
their shares will ever appreciate in value to equal the price our shareholders paid for their
shares. Thus, our shareholders should consider the shares an illiquid and long-term investment, and
they must be prepared to hold their shares for an indefinite length of time.

Financial Statements and Notes

Note 1 — Organization, page 62

RESPONSE
TO COMMENT 8. Registrant proposes to restate its accounting for its 48.601% in the Escondido 7-Eleven
property using the equity method in conformity with the disclosure requirements of SFAS 154.
Registrant will incorporate SFAS 154 paragraphs 25-26 in the following footnotes.

2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During 2008, the Company determined that certain adjustments and reclassifications of previously
issued financial statements were required to correct certain errors
relating to application of Statement of Financial Accounting
Standards 141 “Business Combinations” (“SFAS 141”). Pursuant to SFAS 141, the Company allocates the purchase price of
acquired properties to land, buildings, tenant improvements and identified tangible and intangible
assets and liabilities associated with in-place leases, unamortized leasing commissions, value of
above or below market leases, tenant relationships and value associated with a land purchase option
based upon respective market values. We have determined that our initial process of estimating fair
values for acquired in-place leases did not include all components of such valuation and we did not
value the tenant relationships.

There is no effect to the
total acquisition costs included in the balance sheet. However, the effect of the restatement will
be to increase the depreciation and amortization since the values have been reclassified to shorter
lived assets.

In
addition, the Company did not properly account for its remaining interests in its 7-11
property following the sale of an undivided 48.66% interest in the property. Due to the protective
rights of the tenant in common, the ongoing accounting for the Company’s investment should have
been under the equity method of accounting. In the previously issued statements, the Company had
used the proportional interest consolidation method.

The corrections to the financial statements as of and for the year ended December 31, 2007 are as
follows:

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