UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2008March 31, 2009

or

For the transition period fromto

Commission File Number 001-14784

INCOME OPPORTUNITY REALTY INVESTORS, INC.

(Exact Name of Registrant as Specified in Its Charter)

1800 Valley View Lane, Suite 300,

Dallas, Texas 75234

(Address of principal executive offices)

(Zip Code)

(469) 522-4200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         xYes        x¨No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). *         ¨Yes        ¨No

* The registrant has not yet been phased into the interactive data requirements

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        ¨Yes        ¨    No  xNo

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

INCOME OPPORTUNITY REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

The accompanying notes are an integral part of the consolidatedthese financial statements.

INCOME OPPORTUNITY REALTY INVESTORS, INC

STATEMENTS OF OPERATIONS

(unaudited)

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

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTSSTATEMENT OF OPERATIONSSHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2009

(unaudited)

(dollars in thousands)

The accompanying notes are an integral part of the consolidatedthese financial statements.

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2008

(dollars in thousands)

(unaudited)

The notes are an integral part of the consolidated financial statements.

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

The accompanying notes are an integral part of the consolidatedthese financial statementsstatements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Income Opportunity Realty Investors, Inc. (“IOT”, “We”, “Us”, “Our” or “the Company”) a Nevada corporation, is the successor to a California business trust organized on December 14, 1984. The Company invests in equity interests in real estate through acquisitions, leases and partnerships and in mortgage loans.

The Company is headquartered in Dallas, Texas and its common stock trades on the American Stock Exchange under the symbol “IOT.” Syntek West, Inc. (“SWI”), an affiliated entity, owns approximately 60.5% of the Company’s outstanding stock. SWI serves as the Company’s external advisor. We are an externally advised and managed real estate company. We have no employees.

Properties

At September 30, 2008,March 31, 2009, the Company owned or had or owned interests in a portfolio of four properties consisting of one apartment complex and three commercial buildings. The commercial buildings consist of an office building, a shopping center, 18 acres of land which includes a warehouse currently being used as storage and a warehouse. The commercial properties have an aggregate 202,000 square feet211 acres of leasable space. The one apartment complex, Falcon Point, was damaged by a tornado in May 2008. The property is not rentable and management has no intentions of making the units rentable. The property’s operations are included in discontinued operations.undeveloped land.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of the financial statements for these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for other interim periods or for the full fiscal year. The year endyearend consolidated balance sheet data was derived from audited financial statements, but does not include all disclosure required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Annual Report in the Company’s Form 10-K for its fiscal year ended December 31, 2007.2008.

Dollar amounts in tables are in thousands, except per share amounts.

Certain balances from 2007prior period amounts have been reclassified to conform to the 2008 presentation.current period presentation and to reflect discontinued operations.

Newly issued accounting standards

On January 1, 2009, we adopted SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” (SFAS No. 160). SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This standard defines a non-controlling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS No. 160 requires, among other items, that a non-controlling interest be included in the consolidated statement of financial position within equity separate from the parent’s equity; consolidated net income to be reported at amounts inclusive of both the parent’s and non-controlling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and non-controlling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. The presentation and disclosure requirements of SFAS No. 160 were applied retrospectively. The adoption of SFAS No. 160 had no impact on the Financial Statements.

In September 2006,April 2009, the FASB issued FSP FAS No. 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP FAS No. 141(R)-1). This pronouncement amends SFAS No. 141-R to clarify the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP SFAS No. 141(R)-1 requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, as determined in accordance with SFAS No. 157, “if the acquisition-date fair value can be reasonably estimated. If the acquisition-date fair value of an asset or liability cannot be reasonably estimated, the asset or liability would be measured at the amount that would be recognized in accordance with FASB Statement No. 5, “Accounting for Contingencies” (SFAS No. 5), and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS No. 141(R)-1 became effective for the Registrants as of January 1, 2009. As the provisions of FSP FAS 141(R)-1 are applied prospectively to business combinations

with an acquisition date on or after the guidance became effective, the impact on our financials cannot be determined until the transactions occur.

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value Measurements”. (“When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS No. 157-4), which provides additional guidance for applying the provisions of SFAS No. 157”).157. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. This FSP requires an evaluation of whether there has been a significant decrease in the volume and establishes a frameworklevel of activity for measuringthe asset or liability in relation to normal market activity for the asset or liability. If there has, transactions or quoted prices may not be indicative of fair value which includesand a hierarchy based on the quality of inputs usedsignificant adjustment may need to measurebe made to those prices to estimate fair value. Additionally, an entity must consider whether the observed transaction was orderly (that is, not distressed or forced). If the transaction was orderly, the obtained price can be considered a relevant observable input for determining fair value. If the transaction is not orderly, other valuation techniques must be used when estimating fair value. FSP FAS No. 157-4 must be applied prospectively for interim periods ending after June 15, 2009. We are currently assessing the impact that FSP FAS No. 157-4 may have on our financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and Accounting Principles Board (APB) 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which amends SFAS No. 157 also expands107, “Disclosures about Fair Value of Financial Instruments,” (SFAS No. 107) and APB Opinion No. 28, “Interim Financial Reporting,” respectively, to require disclosures about fair value measurements.of financial instruments in interim financial statements, in addition to the annual financial statements as already required by SFAS No. 157 does107. FSP FAS No. 107-1 and APB No. 28-1 will be required for interim periods ending after June 15, 2009. As FSP FAS No. 107-1 and APB No. 28-1 provides only disclosure requirements; the application of this standard will not require any new fair value measurements. SFAS No. 157 requires the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. SFAS No. 157 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The levels of the SFAS No. 157 fair value hierarchy are described as follows:

SFAS No. 157 became effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB deferred the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB also removed certain leasing transactions from the scope of SFAS No. 157. On January 1, 2008, the Company adopted SFAS No. 157. The adoption of 157 has not hadhave a material effectimpact on our financial statements.

In February 2007,April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS No. 115-2 and FAS No. 124-2), which amends SFAS No. 159, “The Fair Value Option115, “Accounting for Financial AssetsCertain Investments in Debt and Financial Liabilities—including an amendment of FASB Statement No. 115.” (“Equity Securities” and SFAS No. 159”)124, “Accounting for Certain Investments Held by Not-for-Profit Organizations”. SFAS No. 159 permits entitiesThis standard establishes a different other-than-temporary impairment indicator for debt securities than previously prescribed. If it is more likely than not that an impaired security will be sold before the recovery of its cost basis, either due to choose, at specified election dates,the investor’s intent to measure many financial instruments and certain other items at fair value that are not currentlysell or because it will be required to be measured at fair value. Unrealized gains andsell the security, the entire impairment is recognized in earnings. Otherwise, only the portion of the impaired debt security related to estimated credit losses shall be reported on items for which the fair value option has been electedis recognized in earnings, at each subsequent reporting date. SFAS No. 159 became effective for fiscal years beginning after November 15, 2007. On January 1, 2008,while the Company adopted SFAS No. 159remainder of the impairment is recorded in other comprehensive income and has currently not elected to measure any financial instruments or other items (not currently required to be measured at fair value) at fair value.

recognized over the remaining life of the debt security. In December 2007,addition, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No. 141R”),“Business Combinations.”SFAS No. 141R establishes principlesstandard expands the presentation and disclosure requirements for howother-than-temporary-impairments for both debt and equity securities. FSP FAS No. 115-2 and FAS No. 124-2 must be applied prospectively for interim periods ending after June 15, 2009. We are currently assessing the acquirer of a business recognizesimpact that FSP FAS No. 115-2 and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combinations. SFASFAS No. 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Accordingly, any business combinations the Company engages in will be recorded and disclosed following existing accounting principles until January 1, 2009. The Company expects SFAS No. 141R will affect the Company’s consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, term and size of the acquisitions, if any, the Company consummates after the effective date.

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements.” Effective for financial statements issued for fiscal years beginning after December 15, 2008, SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, and will impact the recording of minority interest. The Company is currently evaluating the effects the adoption of SFAS No. 160 will124-2 may have on itsour financial position and results of operations.statements.

NOTE 2. REAL ESTATE ACTIVITY

On January 25, 2008, weWe neither sold six apartment complexesnor acquired properties during the three months ended March 31, 2009. Our properties consist of an office building, a shopping center, 18 acres of land which were located in Midland, Texas inincludes a single transaction. We sold the properties for an aggregate sales pricewarehouse currently being used as storage and 211 acres of $50.0 million, receiving $20.7 million in cash after paying off $25.0 million in existing debt. We recorded a $29.8 million gain on sale as follows:undeveloped land.

On May 30, 2008, a tornado struck the Falcon Point apartments, a 218 unit complex, located in Indianapolis, Indiana. The severity of the damage resulted in the condemnation of the property. The Company terminated all existing leases and discontinued all operations at the complex. The previous operations at the complex have been reclassified as discontinued operations. In July 2008, we received $3.0 million and in September 2008, we received an additional $7.8 million in insurance proceeds related to the tornado damage incurred on the Falcon Point apartments. The transaction has been accounted for in accordance with Financial Accounting Standards Board interpretation SFAS No. 30, “Accounting for Involuntary Conversions of Non-monetary Assets to Monetary Assets.” In accordance with SFAS No. 30, we recorded a gain on involuntary conversion of $7.4 million. We used a portion of the proceeds to pay off the existing $950,000 mortgage secured by the property. The remaining proceeds were transferred to our advisor in accordance with the advisory agreement.

NOTE 3. DISCONTINUED OPERATIONS

The Company applies the provisions of SFAS No. 144, “Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets.”“ SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.

On January 25,

Income from discontinued operations includes seven properties that were sold in 2008. There were no properties sold or classified as held for sale as of March 31, 2009. The discontinued operations for the three months ended 2008 includes the Company sold the following properties, which were located in Midland, Texas:

On May 30, 2008, Falcon Point, a 218 unit apartment complex located in Indianapolis, Indiana was condemned due to damage incurred by a tornado. Since then, all operations at the complex have ceased. Management has no intentions of repairing the damage and is actively marketing the property to sell “As Is.” Thus, the prior operationsgain on sale of the property have been reclassified to discontinued operations.

properties previously sold. The following table summarizes income from discontinued operations from seven properties and the related realized gains on sales of real estate associated with those operations for the three and nine months ended September 30, 2008 and 2007.(dollars in thousands).

The Company’s application of SFAS No. 144 results in the presentation of the net operating results of these qualifying properties sold or held for sale duringas of March 31, 2008 as income from discontinued operations. The application of SFAS No. 144 does not have an impact on net income available to common shareholders. SFAS No. 144 only impacts the presentation of these properties within the Consolidated Statements of Operation.

NOTE 4. NOTES AND INTEREST RECEIVABLE AFFILIATED

The notes receivable consists of eighttwelve notes from affiliated entities, aggregating $28.5$39.6 million, including accrued interest. The notes accrue interest at 7.00%ranging from Prime + 2% to 12.00% with maturity dates ranging from December 2008August 2009 to December 2013. The notes are primarily excess cash flow notes. The allowance on the notes was a purchase allowance that was netted against the notes when acquired (dollars in thousands).

NOTE 5. NOTES AND INTEREST PAYABLE

The following table lists the mortgage notes payable as of September 30, 2008:March 31, 2009 (dollars in thousands):

NOTE 6. ADVISORY AGREEMENT

The Company has an Advisory Agreement with Syntek West, Inc. (“SWI”), wherein. SWI is responsible for the Company’s day-to-day operations. SWI must formulate and submit to IOT’s Board of Directors for approval an annual budget and business plan containing a twelve-month forecast of operations and cash flow with a general plan for asset sales and purchases, borrowing activity and other investments. SWI reports to the Board quarterly on IOT’s performance against the business plan. The Advisory Agreement further places SWI in a fiduciary relationship to IOT’s stockholders and contains a broad standard governing SWI’s liability for any losses incurred by IOT.

SWI receives, as compensation for its management and advice, monthly advisory fees based on 0.0625% of IOT’s assets annually as well as specific fees for assisting IOT in obtaining financing and completing acquisitions. If IOT’s operating expenses exceed limits specified in the Advisory Agreement, SWI is obligated to refund a portion of the advisory fees.

Effective July 1, 2005, theThe Company and SWI entered into a Cash Management Agreement to further define the administration of the Company’s day-to-day investment operations, relationship contacts, flow of funds and deposit and borrowing of funds. Under the Cash Management Agreement, all funds of the Company are delivered to SWI which has a deposit liability to the Company and is

responsible for investment of all excess funds, which earn interest at theWall Street Journal primePrime rate plus one percent per annum, set quarterly on the first day of each calendar quarter. Borrowings for the benefit of the Company bear the same interest rate. The Cash Management Agreement and the Advisory Agreement are automatically renewed each year unless terminated by SWI and IOT.

SWI also receives a Net Income Feenet income fee calculated as 7.50% of IOT’s net income.

Revenues, fees, interest on cash advances and cost reimbursements to SWI:SWI (dollars in thousands):

NOTE 7. RECEIVABLE FROM AND PAYABLE TO AFFILIATES

From time to time, IOT and its affiliates and related parties have made unsecured advances to each other. In addition, IOT and its affiliates have entered intoother which includes transactions involving the purchase, sale, and financing of property. In addition, we have a cash management agreement with our advisor. The agreement provides for excess cash to be invested in and managed by our advisor SWI, an affiliated entity. The table below reflects the various transactions between IOT, SWI, and TCI.TCI (dollars in thousands).

NOTE 8. OPERATING SEGMENTS

The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by property type. The Company’s segments are commercial, apartments, land and other. Significant differences between and among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their operating income and cash flow. There are no intersegment revenues and expenses and IOT conducted all of its business within the United States.

Presented below is operating segment information for the three and nine months ended September 30,March 31, 2009 and 2008 and 2007 (dollars in thousands):

The tabletables below reconcilesreconcile the segment information to the corresponding amounts in the Consolidated Statements of Operations:Operations as of March 31,

SEGMENT ASSET RECONCILIATION TO TOTAL ASSETSNOTE 9. RELATED PARTY TRANSACTIONS

Nine Months Ended 9/30/2008		Commercial Properties				Apartments			Land				Other			Total
Operating revenue		$	911			$	—		$	25			$	259		$	1,195
Operating expenses			662				—			320				64			1,046
Depreciation and amortization			182				—			—				—			182
Mortgage and loan interest			423				—			2,190				53			2,666
Interest income			—				—			—				2,019			2,019
Gain on land sales			—				—			—				—			—
Segment operating income (loss)		$	(356	)		$	—		$	(2,485	)		$	2,161		$	(680	)
Capital expenditures			—				—			—				—			—
Assets			13,812				—			23,270				—			37,082
Property Sales
Sales price		$	—			$	49,563		$	—			$	—		$	49,563
Cost of sale			—				19,774			—				—			19,774
Deferred current gain			—				—			—				—			—
Recognized prior deferred gain			—				—			—				—			—
Gain on sale		$	—			$	29,789		$	—			$	—		$	29,789
Nine Months Ended 9/30/2007		Commercial Properties				Apartments			Land				Other			Total
Operating revenue		$	1,037			$	—		$	—			$	40		$	1,077
Operating expenses			460				—			18				91			569
Depreciation and amortization			172				—			—				—			172
Mortgage and loan interest			425				—			2,024				565			3,014
Interest income			—				—			—				3,494			3,494
Gain on land sales			—				—			—				—			—
Segment operating income (loss)		$	(20	)		$	—		$	(2,042	)		$	2,878		$	816
Capital expenditures			24				—			—				—			24
Assets			17,500				—			23,270				—			40,770
Property Sales
Sales price		$	—			$	—		$	—			$	—		$	—
Cost of sale			—				—			—				—			—
Deferred current gain			—				—			—				—			—
Recognized prior deferred gain			—				—			—				—			—
Gain on sale		$	—			$	—		$	—			$	—		$	—