<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                                   FORM 10-Q


             [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000
                                                          ------------------



                         Commission File Number 1-14784
                                                -------



                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
            -------------------------------------------------------
            (Exact Name of Registrant as Specified in Its Charter)



                    NEVADA                           75-2615944
        -------------------------------         -------------------
        (State or Other Jurisdiction of           (I.R.S. Employer
         Incorporation or Organization)         Identification No.)



         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)



        10670 North Central Expressway, Suite 300, Dallas, Texas  75231
  ---------------------------------------------------------------------------
   (Former Name, Former Address and Former Fiscal Year, If Changed from Last
                                    Report)



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 Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X .  No    .
                                        ---      ---

Common Stock, $.01 par value                           1,533,945
----------------------------              ---------------------------------
         (Class)                          (Outstanding at October 27, 2000)

                                       1
<PAGE>

                         PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS
-----------------------------

The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of Income Opportunity Realty Investors, Inc. ("IORI"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
IORI's consolidated financial position, consolidated results of operations and
consolidated cash flows at the dates and for the periods indicated have been
included.


                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                         September 30,  December 31,
                                                             2000          1999
                                                           --------      --------
                                                          (dollars in thousands,
                                                             except per share)
<S>                                                   <C>            <C>
                      Assets
                      ------
Notes and interest receivable.......................       $  1,500  $        --
Real estate held for investment, net of
      accumulated depreciation ($4,999 in 2000 and
      $9,509 in 1999)...............................         60,968        86,542

Investment in partnerships..........................            124           907
Cash and cash equivalents...........................         18,155           722
Other assets (including $2,718 in 2000 and
      $107 in 1999 from affiliates).................          4,685         3,014
                                                           --------      --------
                                                           $ 85,432      $ 91,185
                                                           ========      ========

        Liabilities and Stockholders' Equity
        ------------------------------------
Liabilities
Notes and interest payable..........................       $ 42,441      $ 62,852
Other liabilities (including $254 in 2000 and
      $721 in 1999 to affiliates)...................          1,873         4,342
                                                           --------      --------
                                                             44,314        67,194

Commitments and contingencies

Stockholders' equity
Common Stock, $.01 par value; authorized,
      10,000,000 shares; issued 1,533,020 shares
      in 2000 and 1,528,908 in 1999.................             15            15
Paid-in capital.....................................         64,898        64,874
Accumulated distributions in excess of
      accumulated earnings..........................        (23,661)      (40,898)
Treasury stock at cost, 19,500 shares in 2000.......           (134)           --
                                                           --------      --------
                                                             41,118        23,991
                                                           --------      --------
                                                           $ 85,432      $ 91,185
                                                           ========      ========
</TABLE>


The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       2
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                        For the Three Months    For the Nine Months
                                         Ended September 30,     Ended September 30,
                                       ----------------------  ----------------------
                                           2000       1999        2000        1999
                                       ----------  ----------  ----------  ----------
                                          (dollars in thousands, except per share)
<S>                                    <C>         <C>         <C>         <C>
Property revenue
  Rents..............................  $    2,994  $    4,199  $   10,732  $   12,016

Property expense
Property operations..................       1,667       1,783       5,286       5,076
                                       ----------  ----------  ----------  ----------
  Operating income...................       1,327       2,416       5,446       6,940


Other income
  Interest...........................         108          10         206          23
Equity in income/(loss) of equity
     partnerships....................          (2)        850         (71)      1,155
  Gain on sale of real estate........       3,856          --      20,878          --
                                       ----------  ----------  ----------  ----------
                                            3,962         860      21,013       1,178

Other expense
 Interest............................       1,250       1,371       4,021       4,206
 Depreciation........................         566         690       1,890       2,008
 Advisory fee to affiliate...........         170         163         505         495
 Net income fee to affiliate.........         234          63       1,453          65
 General and administrative..........         181         210         668         539
                                       ----------  ----------  ----------  ----------
                                            2,401       2,497       8,537       7,313
                                       ----------  ----------  ----------  ----------

 Net income..........................  $    2,888  $      779  $   17,922  $      805
                                       ==========  ==========  ==========  ==========

Earnings per share

Net income...........................       $1.88        $.51      $11.70        $.53
                                       ==========  ==========  ==========  ==========

Weighted average Common shares used
  in computing earnings per share....   1,532,602   1,527,751   1,531,177   1,526,873
                                       ==========  ==========  ==========  ==========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       3
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  For the Nine Months Ended September 30, 2000



<TABLE>
<CAPTION>
                                                                                  Accumulated
                                 Common Stock                                    Distributions
                               -----------------                                 in Excess of
                                                           Treasury    Paid-in     Accumulated   Stockholders'
                                Shares    Amount             Stock     Capital      Earnings        Equity
                               ---------  ------          ---------  ----------  -------------  -------------
<S>                            <C>        <C>              <C>       <C>         <C>            <C>
                                                               (dollars in thousands, except per share)

Balance, January 1, 2000.....  1,528,908      $15         $    --       $64,874      $  (40,898)      $23,991

Sale of Common Stock under
 dividend reinvestment plan..      4,112       --              --            24             --             24

Repurchase 19,500 shares of
 Common Stock................         --       --            (134)           --             --           (134)

Dividends ($.45 per share)...         --       --              --            --            (685)         (685)

Net income...................         --       --              --            --          17,922        17,922
                               ---------   ------         -------      --------      ---------- -------------

Balance, September 30, 2000..  1,533,020      $15         $  (134)      $64,898      $  (23,661)      $41,118
                               =========   ======         =======      ========      ========== =============
</TABLE>

  The accompanying notes are an integral part of these Consolidated Financial
                                  Statements.

                                       4
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                           For the Nine Months
                                                           Ended September 30,
                                                          ----------------------
                                                              2000       1999
                                                          ----------    --------
                                                          (dollars in thousands)
<S>                                                       <C>          <C>
Cash flows from Operating Activities
 Rents collected........................................     $ 10,798    $12,024
 Payments for property operations.......................       (5,456)    (4,498)
 Interest collected.....................................          251         23
 Interest paid..........................................       (3,660)    (4,085)
 Advisory and net income fee to affiliate...............       (1,471)      (160)
 General and administrative expenses paid...............         (697)      (561)
 Distributions from equity partnerships' operating
  cash flow.............................................           25        155
 Other..................................................         (321)        94
                                                             --------    -------
  Net cash provided by (used in) operating
   activities...........................................         (531)     2,992

Cash Flows from Investing Activities
 Funding of note receivable.............................       (1,500)        --
 Investment in equity partnership.......................           --       (384)
 Funding of equity partnerships.........................          (52)        (1)
 Distributions of equity partnerships' investing cash
  flow..................................................           --      2,027
 Real estate improvements...............................         (927)    (1,716)
 Proceeds from sale of real estate......................       46,613         --
 Acquisition of real estate.............................      (15,767)        --
                                                             --------    -------
  Net cash provided by (used in) investing
   activities...........................................       28,367        (74)

Cash Flows from Financing Activities
 Proceeds from notes payable............................       10,875      5,940
 Payments on notes payable..............................      (17,968)    (6,485)
 Deferred financing costs...............................           --       (289)
 Distributions from equity partnerships' financing
  cash flow.............................................          739         --
 Sale of Common Stock under dividend reinvestment plan             24         11
 Repurchase of common stock.............................         (134)        --
 Dividends to stockholders..............................         (685)      (683)
 Net (payments) to affiliate............................       (3,254)    (1,373)
                                                             --------    -------
  Net cash (used in) financing activities...............      (10,403)    (2,879)

Net increase in cash and cash equivalents...............       17,433         39

Cash and cash equivalents, beginning of period..........          722        103
                                                             --------    -------

Cash and cash equivalents, end of period................     $ 18,155    $   142
                                                             ========    =======
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       5
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued




<TABLE>
<CAPTION>
                                                           For the Nine Months
                                                           Ended September 30,
                                                          ----------------------
                                                             2000        1999
                                                          ----------   ---------
                                                          (dollars in thousands)
<S>                                                       <C>          <C>
Reconciliation of net income to net cash provided by
      (used in) operating activities
Net income..............................................     $ 17,922    $   805
Adjustments to reconcile net income to net cash
      provided by (used in) operating activities
      Depreciation and amortization.....................        1,988      2,159
      Gain on sale of real estate.......................      (20,878)        --
      Equity in (income)/loss of partnerships...........           71     (1,155)
      Distributions from equity partnerships' operating
             cash flow..................................           25        155
      Decrease in other assets..........................          392        393
      Increase (decrease) in interest payable...........          263        (30)
      Increase (decrease) in other liabilities..........         (314)       665
                                                             --------    -------
      Net cash provided by (used in) operating
                    activities..........................      $  (531)   $ 2,992
                                                             ========    =======


Schedule of noncash investing and financing activities


      Notes payable from acquisition of real estate.....     $  2,814  $      --

      Notes payable assumed by buyer on sale of real
        estate..........................................       16,094         --

</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       6
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. BASIS OF PRESENTATION
-----------------------------

The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
Dollar amounts in tables are in thousands, except per share amounts.  Operating
results for the nine month period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.  For further information, refer to the Consolidated Financial Statements
and notes thereto included in IORI's Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 Form 10-K").

Certain balances for 1999 have been reclassified to conform to the 2000
presentation.

NOTE 2. INVESTMENT IN EQUITY METHOD REAL ESTATE ENTITIES
--------------------------------------------------------

IORI owns a 36.3% general partner interest in Tri-City Limited Partnership
("Tri-City"), which owns the 70,275 sq. ft. Chelsea Square Shopping Center in
Houston, Texas.  In February 2000, Tri-City obtained mortgage financing of $2.1
million secured by the previously unencumbered shopping center.  Tri-City
received net cash of $2.0 million after the funding of required escrows and the
payment of various closing costs.  The mortgage bears interest at a fixed rate
of 10.24% per annum until February 2001 and thereafter at a variable rate,
requires monthly payments of principal and interest of $20,601 and matures in
February 2005. IORI received a distribution of $739,000 of the net cash.

NOTE 3.    REAL ESTATE
----------------------

In 2000, IORI sold the following properties:

<TABLE>
<CAPTION>
                                                               Net
                                                     Sales     Cash       Debt     Gain on
Property               Location      Units/Sq.Ft.    Price   Received  Discharged   Sale
------------------  ---------------  -------------  -------  --------  ----------  -------
<S>                 <C>              <C>            <C>      <C>       <C>         <C>
First Quarter
Apartments
La Monte Park       Houston, TX      128 Units      $ 5,000   $ 1,066   $ 3,829 *  $   903

Second Quarter
Apartments
Renaissance Parc    Dallas, TX       294 Units       17,198     4,536    12,265 *    1,213

Office Buildings
Olympic             Los Angeles, CA  46,685 Sq.Ft.    8,500     3,811     4,443      1,850
Saratoga            Saratoga, CA     89,825 Sq.Ft.   25,000    17,709     6,968     13,056
</TABLE>

                                       7
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3. REAL ESTATE (Continued)
-------------------

<TABLE>
<CAPTION>
                                                            Net
                                                  Sales     Cash       Debt     Gain on
Property             Location       Units/Acres   Price   Received  Discharged   Sale
---------------  -----------------  -----------  -------  --------  ----------  -------
<S>              <C>                <C>          <C>      <C>       <C>         <C>
Third Quarter
Apartments
East Point       Mesquite, TX       126 Units     $5,575    $1,804      $3,242   $2,179

Land
Etheredge        Collin County, TX  74.98 Acres    2,341       754       1,406      194
Fambrough        Collin County, TX  75.07 Acres    2,338       754       1,408      194
</TABLE>
------------

*     Debt assumed by purchaser.

In 2000, IORI purchased the following properties:


<TABLE>
<CAPTION>
                                                               Net
                                                   Purchase   Cash      Debt     Interest   Maturity
Property               Location       Units/Acres   Price     Paid    Incurred     Rate       Date
----------------  ------------------  -----------  --------  -------  ---------  ---------  --------
<S>               <C>                 <C>          <C>       <C>      <C>        <C>        <C>
Second Quarter
Apartments
Frankel
 Portfolio *      Midland, TX         391 Units *   $14,034   $2,905  $  10,875      9.13%     07/03

Land
Frankel           Midland County, TX  1.01 Acres         41       43         --        --         --
Etheredge         Collin County, TX   74.98 Acres     1,875      344      1,406 **   10.0%     04/01
Fambrough         Collin County, TX   75.07 Acres     1,877      345      1,408 **   10.0%     04/01
</TABLE>
------------

*     Frankel portfolio consists of five apartments: 60 unit Brighton Court, 92
      unit Del Mar Villas, 68 unit The Enclave, 57 unit Signature Place and 114
      unit Sinclair Place.

**    Seller financing.


NOTE 4. NOTES AND INTEREST RECEIVABLE
-------------------------------------

In September 2000, IORI funded a $1.5 million loan to JNC Enterprises, Inc.
secured by a second lien on 165 acres of land in The Colony, Texas. The loan
bears interest at 18.0% per annum, requires monthly payments of interest only
and matures in March 2001.

                                       8
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
-----------------------------------------------------

Fees and cost reimbursements to Basic Capital Management, Inc. ("BCM"), a
contractual advisor under the supervision of the Board of Directors, and its
affiliates for the nine months ended:


<TABLE>
                                                 September 30,
                                                      2000
                                                 -------------
<S>                                          <C>
Fees
 Advisory...................................         $  506
 Net income.................................          1,453
 Property acquisition.......................            556
 Real estate brokerage......................          1,514
 Mortgage brokerage and equity refinancing..              7
 Property and construction management and
  leasing commissions*......................            461
                                                     ------
                                                     $4,497
                                                     ======

Cost reimbursements........................         $  210
                                                    ======
</TABLE>
-------------

* Net of property management fees paid to subcontractors other than Regis
  Realty, Inc., which is owned by an affiliate of BCM.


NOTE 6.  OPERATING SEGMENTS
---------------------------

Significant differences among the accounting policies of IORI's operating
segments as compared to the Consolidated Financial Statements principally
involve the calculation and allocation of general and administrative expenses.
Management evaluates the performance of each of the operating segments and
allocates resources to each of them based on their net operating income and cash
flow.  Items of income that are not reflected in the segments are interest,
equity in partnerships and gains on sale of real estate totaling $21.0 million
and $1.2 million for the nine months ended September 30, 2000 and 1999,
respectively. Expenses that are not reflected in the segments are general and
administrative expenses, non-segment interest expense and advisory and net
income fees totaling $2.6 million and $1.1 million for the nine months ended
September 30, 2000 and 1999, respectively.  Excluded from operating segment
assets are assets of $24.5 million at September 30, 2000, and $4.3 million at
September 30, 1999, which are not identifiable with an operating segment.  There
are no intersegment revenues and expenses and all business is conducted in the
United States.

                                       9
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 6.  OPERATING SEGMENTS (Continued)
---------------------------

Presented below is the operating income of each operating segment for the nine
months ended September 30 and each segment's assets at September 30.

<TABLE>
                            Commercial
2000                        Properties  Apartments  Land  Total
                            ----------  ----------  ----  --------
<S>                         <C>         <C>         <C>   <C>
  Rents...................     $ 6,435     $ 4,297  $ --   $10,732
  Property operations.....       2,857       2,429    --     5,286
                               -------     -------  ----   -------
  Segment operating income     $ 3,578     $ 1,868  $ --   $ 5,446
                               =======     =======  ====   =======

  Depreciation............     $ 1,410     $   480  $ --   $ 1,890
  Interest................       2,437       1,391   181     4,009
  Real estate improvements         915          12    --       927
  Assets..................      38,682      22,242    44    60,968
</TABLE>

<TABLE>
<CAPTION>

Property sales:    Commercial
                   Properties  Apartments   Land      Total
                   ----------  ----------  -------  ---------
<S>                <C>         <C>         <C>      <C>
  Sales price....     $33,500     $27,773   $4,679   $ 65,952
  Cost of sale...      18,594      23,477    4,291     46,362
                      -------     -------   ------   --------
  Gain on sale...     $14,906     $ 4,295   $  388   $19,590*
                      =======     =======   ======   ========
</TABLE>
---------------

* Excludes recognition of a $1.3 million deferred gain on the sale of a property
  by an affiliate which had purchased the property from IORI.

<TABLE>
<CAPTION>
                            Commercial
1999                        Properties  Apartments   Total
                            ----------  ----------  --------
<S>                         <C>         <C>         <C>
  Rents...................     $ 8,022     $ 3,994   $12,016
  Property operations.....       3,307       1,769     5,076
                               -------     -------   -------
  Segment operating income     $ 4,715     $ 2,225   $ 6,940
                               =======     =======   =======

  Depreciation............     $ 1,556     $   452   $ 2,008
  Interest................       2,832       1,374     4,206
  Real estate improvements       1,716          --     1,716
  Assets..................      58,952      24,446    83,398
</TABLE>

NOTE 7.    COMMITMENTS AND CONTINGENCIES
----------------------------------------

IORI is involved in various lawsuits arising in the ordinary course of business.
Management is of the opinion that the outcome of these lawsuits will have no
material impact on IORI's financial condition, results of operations or
liquidity.

NOTE 8.  SUBSEQUENT EVENTS
--------------------------

On October 3, 2000, IORI entered into a stock option agreement which provided
IORI and American Realty Investors, Inc. ("ARI") with an option to purchase
1,858,900 shares of common stock of Transcontinental Realty Investors, Inc.
("TCI") from a third party. On October 19, 2000, IORI assigned all of its rights
to purchase such shares to ARI.

                                       10
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS
         ---------------------

Introduction
------------

IORI invests in equity interests in real estate through direct equity ownership
and partnerships and has invested in mortgage loans on real estate.  IORI is the
successor to a California business trust organized on December 14, 1984, which
commenced operations on April 10, 1985.

Liquidity and Capital Resources
-------------------------------

Cash and cash equivalents at September 30, 2000, were $18.2 million, compared
with $722,000 at December 31, 1999.  IORI's principal sources of cash have been,
and will continue to be property operations, proceeds from property sales,
financings and refinancings, partnership distributions and, to the extent
necessary, advances from its advisor.

IORI's cash from property operations (rents collected less payments for expenses
applicable to rental income) decreased to $5.3 million for the nine months ended
September 30, 2000, from $7.5 million in 1999.  The decrease was primarily due
to the sale of Eastpoint Apartments, La Monte Park Apartments, Renaissance Parc
Apartments, Saratoga Office Building and Olympic Office Building in 2000,
partially offset by the Frankel portfolio acquisition in 2000 and the Meridian
Apartments acquisition in 1999.

Interest paid decreased to $4.0 million in the nine months ended September 30,
2000, from $4.2 million in 1999.  The decrease is due to the sale of five
properties in 1999 and 2000, partially offset by the purchase of eight
properties in 1999 and 2000.

General and administrative expenses paid increased to $697,000 in the nine
months ended September 30, 2000, from $561,000 in 1999.  The increase was
primarily due to an increase in legal fees, shareholder relations expenses,
professional fees and directors and officers insurance.

Distributions from equity partnerships' operating cash flow were $25,000 for the
nine  months ended September 30, 2000, compared to $155,000 in 1999.

No distributions from equity partnerships' investing cash flow were received in
the nine  months ended September 30, 2000, compared to $2.0 million in 1999.
The 1999 distribution was due to Tri-City's sale of Summit at Bridgewood
Shopping Center and the MacArthur Mills Shopping Center in 1999.

Distributions from equity partnerships' financing cash flow of $739,000 were
received in the nine  months ended September 30, 2000.  See NOTE 2. "INVESTMENT
IN EQUITY METHOD REAL ESTATE ENTITIES."

Advisory and net income fee paid increased to $1.5 million in the nine months
ended September 30, 2000 from $160,000 in the nine months ended September 30,
1999. The increase is primarily due to the net income fee of $1.3 million. No
such fee was incurred in 1999. Under its advisory

                                       11
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------

Liquidity and Capital Resources (Continued)
-------------------------------

agreement, all or a portion of the annual advisory fee must be refunded by the
advisor if the operating expenses of IORI exceed certain limits specified in the
advisory agreement.  IORI received a refund of $289,000 of its 1999 advisory fee
in April 2000, compared to $167,000 of its 1998 advisory fee in March 1999.

Other cash used in operating activities was $321,000 for the nine months ended
September 30, 2000, compared to cash provided of $94,000 in 1999.  The change is
primarily due to the payment of an accrued acquisition commission.

In 2000, IORI paid dividends of $.45 per share or a total of $685,000, and 4,112
shares of common stock were sold through the dividend reinvestment program for a
total of $24,000.

In 2000, 19,500 shares of common stock were repurchased for a total of $134,000.
There were no shares repurchased in 1999.

In March 2000, IORI sold the 128 unit La Monte Park Apartments in Houston,
Texas, for $5.0 million, receiving net cash of $1.1 million after the payment of
various closing costs.  The purchaser assumed the $3.8 million mortgage secured
by the property.

In April 2000, IORI purchased, in separate transactions, Etheredge and Fambrough
land, 75.0 acre and 75.1 acre parcels of unimproved land in Collin County,
Texas, for $1.9 million each.  IORI paid a total of $689,000 in cash and
obtained seller financing of the remaining $1.4 million of each of the purchase
prices.  In September 2000, IORI sold both land parcels, in a single
transaction, for $4.7 million, receiving net cash of $1.6 million after paying
off $2.8 million in existing mortgage debt and the payment of various closing
costs.

In May 2000, IORI sold the 89,825 sq.ft. Saratoga Office Building in Saratoga,
California, for $25.0 million, receiving net cash of $17.7 million after the
payoff of existing debt and the payment of various closing costs.

Also in May 2000, IORI sold the 46,685 sq.ft. Olympic Office Building in Los
Angeles, California, for $8.5 million, receiving net cash of $3.8 million after
the payoff of existing debt and the payment of various closing costs.

In June 2000, IORI sold the 294 unit Renaissance Parc Apartments in Dallas,
Texas, for $17.2 million, receiving net cash of $4.5 million after the payment
of various closing costs.  The purchaser assumed the $12.3 million mortgage
secured by the property.

Also in June 2000, IORI purchased the Frankel portfolio, consisting of the 60
unit Brighton Court Apartments, the 92 unit Del Mar Villas Apartments, the 68
unit Enclave Apartments, the 57 unit Signature Place Apartments and the 114 unit
Sinclair Place Apartments in Midland, Texas, for $14.0 million. IORI paid $2.9
million in cash and obtained mortgage financing of $10.9 million.

                                       12
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------

Liquidity and Capital Resources (Continued)
-------------------------------

Further in June 2000, IORI purchased Frankel land, a 1.0 acre parcel of
unimproved land in Midland County, Texas, for $41,000.  IORI paid $43,000 in
cash after the payment of various closing costs.

In September 2000, IORI sold the 126 unit Eastpoint Apartments in Mesquite,
Texas, for $5.6 million, receiving net cash of $1.8 million after the payoff of
existing debt and the payment of various closing costs.

Also in September 2000, IORI funded a $1.5 million note receivable secured by a
second lien on 165 acres of land in The Colony, Texas.

Management reviews the carrying values of IORI's properties at least annually
and whenever events or a change in circumstances indicate that impairment may
exist.  Impairment is considered to exist if, in the case of a property, the
future cash flow from the property (undiscounted and without interest) is less
than the carrying amount of the property.  If impairment is found to exist, a
provision for loss is recorded by a charge against earnings.  The property
review generally includes selective property inspections, discussions with the
manager of the property, visits to selected  properties in the area and a review
of the  following:  (1) the property's current rents compared to market rents,
(2) the property's expenses, (3) the property's maintenance requirements, and
(4) the property's cash flows.

Results of Operations
---------------------

For the three and nine  months ended September 30, 2000, IORI had net income of
$2.9 million and $17.9 million as compared with net income of $799,000 and
$805,000 for the corresponding periods in 1999. Fluctuations in components of
revenue and expense between the 1999 and 2000 periods are discussed below.

Rents in the three and nine  months ended September 30, 2000, were $3.0 million
and $10.7 million as compared to $4.2 million and $12.0 million in the
corresponding periods in 1999.  The decrease was due to the sale of Eastpoint
Apartments, La Monte Park Apartments, Renaissance Parc Apartments, Saratoga
Office Building and Olympic Office Building in 2000, partially offset by the
acquisition of Meridian Apartments in 1999 and Frankel portfolio in 2000.  Rents
for the fourth quarter of 2000 are expected to approximate that of the third
quarter, unless IORI should selectively acquire or sell properties.

Property operations expense in the three and nine months ended September 30,
2000, of $1.7 million and $5.3 million approximated the $1.8 million and $5.1
million in the corresponding periods in 1999, as the decrease due to the sold
properties offset the increases due to the Frankel and Meridian acquisitions.

Interest income in the three and nine  months ended September 30, 2000, was
$108,000 and $206,000 as compared to $10,000 and $23,000 in the

                                       13
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------

Results of Operations (Continued)
---------------------

corresponding periods in 1999.  The increase was due to the investment of cash
received from the sale of two apartment and two commercial properties.  Interest
income for the fourth quarter of 2000 is expected to increase due to the funding
of a note receivable.

Equity in partnerships in the three and nine  months ended September 30, 2000,
were losses of $2,000 and $71,000, as compared to income of $850,000 and $1.2
million.  The decrease is mainly due to IORI's equity share of the 1999 gain
recognized by Tri-City on the sale of one commercial property.

For the three and nine  months ended September 30, 2000, gains on sale of real
estate totaling $3.9 million and $20.9 million were recognized, $903,000 on the
sale of La Monte Park Apartments, $1.2 million on the sale of Renaissance Parc
Apartments, $1.9 million on the sale of Olympic Office Building, $13.1 million
on the sale of Saratoga Office Building, $388,000 on the sale of the Fambrough
and Etheredge land, $2.2 million on the sale of Eastpoint Apartments and a $1.3
million recognition of a deferred gain on the sale of a property by an affiliate
which had purchased the property from IORI.  No such gains were recognized in
1999.

Interest expense of $1.3 million and $4.0 million in the three and nine months
ended September 30, 2000, was comparable to the $1.4 million and $4.2 million in
1999.  Interest expense for the fourth quarter of 2000 is expected to
approximate that of the third quarter, unless IORI should selectively acquire or
sell properties.

Depreciation expense was $566,000 and $1.9 million in the three and nine months
ended September 30, 2000, compared to $690,000 in 1999 and $2.0 million in 1999.
The decrease is due to the sale of three apartments and two commercial
properties.  Depreciation in the fourth quarter is expected to approximate the
third quarter.

Advisory fee expense of $170,000 and $505,000 in the three and nine months ended
September 30, 2000, was comparable to the $163,000 and $495,000 in 1999.  IORI's
gross assets are the basis for such fee. Advisory fee expense is expected to
remain constant, unless IORI should selectively acquire or sell properties.

Net income fee was $234,000 and $1.5 million in the three and nine months ended
September 30, 2000, compared to $63,000 and $65,000 in 1999.  The net income fee
is payable to IORI's advisor based on 7.5% of IORI's net income.

General and administrative expense was $181,000 and $668,000 for the three and
nine months ended September 30, 2000 as compared to $210,000 and $539,000 in the
corresponding periods in 1999. The three month decrease was primarily due to
decreases in advisor cost reimbursements and shareholder relations expenses,
partially offset by an increase in legal fees and professional fees. The nine
month increase was primarily

                                       14
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------

Results of Operations (Continued)
---------------------

due to an increase in legal fees, professional fees, shareholder relations
expenses and advisor cost reimbursements.  General and administrative expense
for the fourth quarter of 2000 is expected to approximate that of the third
quarter of 2000.

Tax Matters
-----------

As more fully discussed in IORI's 1999 Form 10-K, IORI has elected and, in
management's opinion, qualified, to be taxed as a real estate investment trust
("REIT"), as defined under Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended, (the "Code").  To continue to qualify for federal taxation
as a REIT under the Code, IORI is required to hold at least 75% of the value of
its total assets in real estate assets, government securities, cash and cash
equivalents at the close of each quarter of each taxable year.  The Code also
requires a REIT to distribute at least 95% of its REIT taxable income plus 95%
of its net income from foreclosure property, all as defined in Section 857 of
the Code, on an annual basis to shareholders.

Inflation
---------

The effects of inflation on IORI's operations are not quantifiable. Revenues
from apartment operations tend to fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales value of properties and the ultimate gain to be realized
from property sales.  To the extent that inflation affects interest rates,
earnings from short-term investments and the cost of new financings, as well as
the cost of variable interest rate debt, will be affected.

Environmental Matters
---------------------

Under various federal, state and local environmental laws, ordinances and
regulations, IORI may be potentially liable for removal or remediation costs, as
well as certain other potential costs, relating to hazardous or toxic substances
(including governmental fines and injuries to persons and property) where
property-level managers have arranged for the removal, disposal or treatment of
hazardous or toxic substances.  In addition, certain environmental laws impose
liability for release of asbestos-containing materials into the air and third
parties may seek recovery for personal injury associated with such materials.

Management is not aware of any environmental liability relating to the above
matters that would have a material adverse effect on IORI's business, assets or
results of operations.

Year 2000
---------

Even though January 1, 2000, has passed and no adverse impact from the
transition to the year 2000 was experienced, no assurance can be provided that
IORI's suppliers and tenants have not been affected in a

                                       15
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------

Year 2000 (Continued)
---------

manner that is not yet apparent.  As a result, management will continue to
monitor IORI's year 2000 compliance and the year 2000 compliance of IORI's
suppliers and tenants.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
-----------------------------------------------------------------------

At September 30, 2000, IORI's exposure to a change in interest rates on its debt
is as follows:

<TABLE>
<CAPTION>
                                                  Weighted      Effect of 1%
                                                   Average       Increase In
                                    Balance     Interest Rate    Base Rates
                                   ----------  ---------------  -------------
                                    (Amounts in thousands, except per share)
<S>                                <C>         <C>              <C>
Wholly-owned debt:
  Variable rate..................     $29,490            9.83%          $295
                                   ==========                           ====

Total decrease in IORI's annual
  net income.....................                                       $295
                                                                        ====

Per share........................                                       $.19
                                                                        ====
</TABLE>

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

                          PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS
--------------------------

Olive Litigation.  In February 1990, IORI, together with Continental Mortgage
and Equity Trust ("CMET"), National Income Realty Trust and Transcontinental
Realty Investors, Inc. ("TCI"), three real estate entities with, at the time,
the same officers, directors or trustees and advisor as IORI, entered into a
settlement (the "Settlement") of a class and derivative action entitled Olive et
al. v. National Income Realty Trust et al. relating to the operation and
management of each of the entities (the "Olive Litigation").  On April 23, 1990,
the Court granted final approval of the terms of the Settlement.  The Settlement
was modified in 1994 (the "Modification").

On January 27, 1997, the parties entered into an Amendment to the Modification
effective January 9, 1997 (the "Olive Amendment").  The Olive Amendment provided
for the settlement of additional matters raised by plaintiffs' counsel in 1996.
The Court issued an order approving the Olive Amendment on July 3, 1997.

The Olive Amendment provided that IORI's Board of Directors retain a
management/compensation consultant or consultants to evaluate the fairness of
IORI's advisory contract with Basic Capital Management, Inc. and any contract of
its affiliates with TCI, CMET and IORI, including, but not limited to, the
fairness to TCI, CMET and IORI of such contracts

                                       16
<PAGE>

ITEM 1.  LEGAL PROCEEDINGS (Continued)
--------------------------

relative to other means of administration.  In 1998, the Board engaged a
management/compensation consultant to perform the evaluation which was completed
in September 1998.

In 1999, plaintiffs' counsel asserted that the Board did not comply with the
provision requiring such engagement and requested that the Court exercise its
retained jurisdiction to determine whether there was a breach of this provision
of the Olive Amendment.  In January 2000, the Board engaged another
management/compensation consultant to perform the required evaluation again.
This evaluation was completed in April 2000 and was provided to plaintiffs'
counsel.  The Board believes that any alleged breach of the Olive Amendment has
been fully remedied by the Board's engagement of the second consultant.
Although several status conferences have been held on this matter, there has
been no Court order resolving whether there was any breach of the Olive
Amendment.

In October 2000, plaintiffs' counsel asserted that the stock option agreement to
purchase TCI shares, which was entered into by IORI in October 2000 with Gotham
Partners, breached a provision of the Modification.  AS a result of this
assertion, IORI has assigned all of its rights to purchase the TCI shares under
this stock option agreement to a third party.  The Board believes that the
provisions of the Settlement, the Modification and Olive Amendment terminated on
April 28, 1999.  However, plaintiffs' counsel has asserted that certain
provisions continue to be effective after the termination date.  This matter is
pending before the Court.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

The annual meeting was held on October 10, 2000, at which meeting stockholders
were asked to consider and vote upon the election of Directors.  At the meeting
stockholders elected the following individuals as Directors:

<TABLE>
<CAPTION>
                          Shares Voting
                       --------------------
                                  Withheld
      Director            For     Authority
---------------------  ---------  ---------
<S>                    <C>        <C>
R. Douglas Leonhard..  1,254,598     32,629
Murray Shaw..........  1,254,598     32,629
Ted P. Stokely.......  1,254,598     32,629
Martin L. White......  1,254,598     32,629
Edward G. Zampa......  1,254,598     32,629
</TABLE>

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------------

(a)        Exhibits:

Exhibit
Number                                Description
-------       ---------------------------------------------------------

 27.0         Financial Data Schedule, filed herewith.

                                       17
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
----------------------------------------

(b) Reports on Form 8-K as follows:


    A Current Report on Form 8-K, dated September 22, 2000, was filed October
    12, 2000, with respect to ITEM 2. "ACQUISITION AND DISPOSITION OF ASSETS,"
    and ITEM 7. "FINANCIAL STATEMENTS AND EXHIBITS," which reports the
    disposition of Eastpoint Apartments and the Fambrough and Etheredge land.

                                       18
<PAGE>

                                 SIGNATURE PAGE



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                  INCOME OPPORTUNITY REALTY INVESTORS, INC.



Date:   November 13, 2000         By:  /s/ Karl L. Blaha
     ------------------------        ----------------------------------
                                       Karl L. Blaha
                                       President



Date:   November 13, 2000         By:  /s/ Mark W. Branigan
     ------------------------        ----------------------------------
                                       Mark W. Branigan
                                       Executive Vice President and
                                       Chief Financial Officer
                                       (Principal Financial Officer)

                                       19
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.

                                  EXHIBITS TO
                         QUARTERLY REPORT ON FORM 10-Q

                    For the Quarter Ended September 30, 2000



Exhibit                                                                  Page
Number                                 Description                      Number
-------            ------------------------------------------------     ------

 27.0              Financial Data Schedule.                               21

                                       20