INCOME OPPORTUNITY REALTY INVESTORS INC /TX/

The following discusses risk factors that could affect our business, operations and financial condition. If any of these risks, as well as other risks and uncertainties that we have not yet identified or that we currently believe are not material, actually occur, we could be materially adversely affected and the value of our securities could decline. In addition, the following risk factors may contain “forward looking statements” and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the financial statements and related notes in this Annual Report on Form 10-K. An investment in our securities involves various risks. All investors should carefully consider the following risk factors, applicable to us and our assets in conjunction with the other information in this report before investing in our securities.

Our business may be impacted as a result of any health emergency.

Considerable uncertainty still surrounds the recent Covid-19 pandemic, including its conclusion, the availability of and effectiveness of vaccines, the potential short-term and long term effects, including but not limited to shifts in consumer housing demand based on geography, affordability, housing type (e.g., multi-family vs. single family) and unit type (e.g., office studio vs. multi-bedroom), mainly resulting from the paradigm shift of work culture, the decentralization of corporate headquarters and the success of “work from home” models. Moreover, local, state and national measures taken to limit the spread of the recent pandemic have already resulted in significant economic impacts and mortality rates, the duration and scope of which cannot currently be predicted. The extent to which our financial condition or operating results will be effected in the future by any future pandemic will largely depend on future demand and developments, which are highly uncertain and cannot be accurately predicted with any degree of accuracy.

We may not be able to access financial markets to obtain capital on a timely basis, or on acceptable terms.

We may need to rely on third party capital sources for a portion of our capital needs, including capital for acquisitions and development. The public debt and equity markets are among the sources on which we rely. There is no guarantee that we will be able to access these markets, or any other source of capital. The ability to access the public debt and equity markets depends on a variety of factors, including:

Our degree of reliance on the operations of certain businesses to collect receivables can affect our cash flow.

The collection of our receivables are dependent upon the ability of the assets held by others that secure the notes or fund receivable payments to produce sufficient cash flow to service these notes and receivables. Changes in general or local economic conditions in the southwestern United States and, in particular, the Dallas, Texas area can have an adverse effect on the payment of these notes or other receivables.

Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our common stock.

The degree of leverage available to the Company could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. The degree of leverage could also make us more vulnerable to a downturn in business or the economy.

An increase in interest rates would increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt.

We may incur indebtedness that bears interest at variable rates. Accordingly, if interest rates increase, so will our interest costs, which would adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our stockholders. Further, rising interest rates could limit our ability to refinance any existing debt when it matures.

Substantially all of our assets are receivables from related parties

We are the payee and holder of a note receivable secured by real properties owned by one entity and its affiliates which is payable through their cash flow, which can vary significantly from time to time. Payment on this note is dependent upon the successful operations of the organizations. Should the maker of the note be unable to produce the cash flow necessary to service the note, our collection of note and interest payment receipts could be adversely affected. The maker is in the business of making available affordable multi-family housing and is therefore subject to the challenges from governmental and non-governmental assistance organizations. The entity is determined to be a “related party” under ASC 850 due to our significant investment and that of our controlling shareholder in the performance of the collateral secured by the note receivable. In addition, we have a substantial receivable from our controlling shareholder.

We engage in a number of business transactions with related parties, including investment in notes and accounts receivable which related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily in our best interests. If a related party is unable to, or prevented from payment of any such note or account receivable in accordance with its terms, that event could have a material adverse effect upon our cash flow, profits and value of our assets. While such notes and accounts receivable are set forth in our financial statements at full value, such assumption is based solely upon our projection of the ability of the related party to fund payments on such assets in accordance with their respective terms and conditions but does not provide any allowance or suggested offset for any industry experience considerations. If any event occurs which might prevent or delay compliance by makers of such notes or accounts receivable, same could have an adverse impact upon our revenue collections.