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METZGER & McDONALD PLLC

(formerly Prager, Metzger & Kroemer PLLC)

A PROFESSIONAL LIMITED LIABILITY COMPANY

ATTORNEYS, MEDIATORS & COUNSELORS

    Steven C. Metzger

    2626 Cole Avenue, Suite 900

    Direct Dial 214-740-5030

    Dallas, Texas 75204-1083

    Facsimile 214-523-3838

    smetzger@pmklaw.com

    214-969-7600

    214-969-7635

    www.pmklaw.com

July 18, 2005

Via EDGAR

The Securities and Exchange Commission

450 Fifth Street, N.W.

Judiciary Plaza

Washington, D.C. 20549-1004

    Attn:

    Stephen Jacobs, Accounting Branch Chief

    Rachel Zablow, Staff Accountant

    Division of Corporation Finance

    Mail Stop 4561

    Re:

    Income Opportunity Realty Investors, Inc. (Commission

    File No. 001-14784; CIK No. 0000949961) — Form 10-K for the

    fiscal year ended December 31, 2004

Ladies and Gentlemen:

          On behalf of Income Opportunity Realty Investors, Inc., a Nevada corporation
(“IOT”), this letter is being filed as a supplemental letter uploaded on
the EDGAR system on behalf of IOT in response to a letter of comments of the Staff of
the Securities and Exchange Commission dated July 1, 2005. Schedule 1 annexed to this
letter contains the responses to the comments of the Staff. In each instance on such
Schedule, for convenience, each comment of the Staff is repeated, followed in each
instance by the applicable response to such comment or explanation. Also included in
each response, where appropriate, is a letter/page reference to the text of the
applicable document or instrument referenced in the comment.

          For some reason unknown to IOT, the original letter of comments of the Staff
dated July 1, 2005 was faxed to a telecopier or facsimile number at another entity and
not ultimately received by a representative of IOT until late in the afternoon on July
6, 2005. For future reference of the Staff, the appropriate facsimile number for IOT
is 214-361-0964.

    The Securities and Exchange Commission

    Attn:

    Stephen Jacobs, Accounting Branch Chief

Rachel Zablow, Staff Accountant

    July 18, 2005

    Page 2

          This letter and Schedule 1 are being filed under the EDGAR system in direct
response to the comment of the Staff. If you would like to discuss any item
concerning the referenced matter or included in this letter or Schedule 1, please do
not hesitate to contact the undersigned at any time at 214-740-5030 direct.

Very truly yours,

/s/ Steven C. Metzger

Steven C. Metzger

SCM:ag

Enclosures

    cc:

    R. Neil Crouch, Executive Vice President

     and Chief Financial Officer

Peter Wang, Controller

Louis J. Corna, Executive Vice President,

     Tax and General Counsel and Secretary

Ken L. Joines, Director

Income Opportunity Realty Investors, Inc.

SCHEDULE 1

Response to Comments of the Staff of

The Securities and Exchange Commission

by letter dated July 1, 2005 with respect to

Form 10-K for the year ended December 31, 2004 of

Income Opportunity Realty Investors, Inc.

Commission File No. 001-14784

          The following information is intended to provide a further response to
comments of the Staff of the Securities and Exchange Commission rendered by letter
dated July 1, 2005, with respect to Form 10-K Annual Report to the Securities and
Exchange Commission for the fiscal year ended December 31, 2004 of Income Opportunity
Realty Investors, Inc. For convenience, each comment of the Staff is restated below,
with our response noted immediately following the comment. Also included in such
response is a letter/page reference to the text in the Form 10-K for the fiscal year
ended December 31, 2004 (which was filed on March 31, 2005), as applicable, and/or a
reference to the date of supplemental information provided to the Staff, including
supplemental information provided by letter dated May 6, 2005 (the “First
Supplemental Response”), by letter dated June 3, 2005 (the “Second
Supplemental Response”), or by letter dated June 24, 2005 by facsimile (the “Third Supplemental Response”).

CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Notes and Interest Payable, page 45

          Comment/Observation No. 1. We note that you guaranteed that the acquiring
partnerships controlled by Metra would receive a 15% cumulative compound annual return
on their investments. With respect to your conclusion that you have continuing
involvement with the properties without transfer of risks and rewards, please tell us
the nature of your obligation to fund this return for property operations, and in the
event that the Metra Partnerships are liquidated. In addition, provide us with the
portion(s) of the relevant agreement(s) that discuss these obligations.

          Response to Comment/Observation No. 1. Income Opportunity Realty Investors, Inc. (the
“Company” or “IOT”) guaranteed that the acquiring
partnerships formed with
 Metra Capital LLC (“Metra”) would receive a 15% cumulative compound annual return on
their investments. The 15% cumulative compound annual return (i.e., the “Preferential
Return”) was to be paid from the property excess cash flow, and if cash flow was insufficient
to cover the full amount of the Preferential Return, the difference would accrue until the
underlying property was sold to an independent third party; the investors would receive funds first
to make up the Preferential Return at the rate of 15% compounded annually on the property prior to
a return of 25% of the sales cash flow and any required preferred interest redemption. IOT
previously provided in the Second Supplemental Response an exhibit setting forth a schedule of the
Preferential Return on the

Schedule 1 - Page 1

properties covering from inception of the arrangement through December 31, 2004.
Distributions which were in excess of the expensed 15% Preferential Return were accrued by IOT as a
receivable from Metra. IOT also had (and has) a right to approve the price of any sale by Metra of
the properties.

          In fact, it is the process that has been in effect since the original transaction in April
2002 that has essentially acted as the “guaranty,” pursuant to which IOT agreed to
ensure that IOT would cover any cash shortfalls. The process is that each property distributes its
gross cash to a concentration account controlled by Metra. Metra then pays the property bills from
the account, including the payment of a ½% management fee to Innovo, a ½% management
fee to Metra, and the 15% Preferential Return to the Metra Partners each month. If the
concentration account cash flow has not been sufficient to cover all of those expenses, then Metra
has requested IOT to fund the shortfalls, requests which IOT satisfied by making funding
contributions of cash to cover the amount of the shortfalls based upon IOT’s understanding of
the original transaction. The net effect is a “procedural guaranty” of the Metra
Partners to ensure payment and distribution of the 15% Preferential Return and all expenses; this
method also procedurally uses cash from the better performing properties to cover any shortfall
from under-performing properties. Further, when cash has been distributed to the Metra Partners
for the 15% Preferential Return (and the ½% management fees), it has been delivered in one
lump sum each month and deducted from the property cash. The property credited cash and debited an
account with Metra. Each month when IOT has calculated the 15% Preferential Return (and the
½% management fee to Metra), the full 15% Preferential Return as calculated has been
expensed. In order to expense the two fees, IOT has debited the expense account and credited the
account with Metra. If the cash disbursed and the fees calculated matched, there would be no
balance remaining in the Metra account. However, it appears that IOT has under-calculated the 15%
Preferential Return, and therefore ended up with a receivable from Metra. IOT has recalculated the
15% Preferential Return (on a compounded basis) and determined that at December 31, 2004, if IOT
were to apply the correct interest expense, the receivable from Metra would almost be eliminated.
Additionally, on a period-by-period basis looking at the 2002, 2003 and 2004 financial statements
included in the Forms 10-K of IOT, the net income would be reduced by the “increased”
expense from a low of 2% to a high of 4% in these periods. IOT’s management determined that
such “increase” would not be a material change in the financial statements.

          Comment/Observation No. 2. Further to our previous comment, please confirm to us that you
will enhance your disclosure in the future to address the terms of your obligations to Metra as it
relates to your accounting treatment under SFAS 66. Please include the revised disclosure in your
response.

          Response to Comment/Observation No. 2. The Company hereby confirms it will enhance its
disclosure in future filings to address the terms of the obligations to Metra as it relates to the
accounting treatment under SFAS 66. However, as a preface to the “revised disclosure,”
please recall that on August 10, 2004, certain entities, including IOT, instituted an action in a
Texas State District Court as Cause No. 2004-60231-393 against Innovo Realty, Inc., et al.
(including Metra) over the process and other matters. A summary of that litigation is included
under Item 3 — Legal Proceedings in IOT’s Form 10-K for the fiscal year ended December
31, 2004. During April 2005, a resolution of the litigation occurred settling all liabilities
remaining from the original partnership

Schedule 1 - Page 2

arrangements which included a return of the Metra investor equity, prepayment of prospective
asset management fees and miscellaneous and transaction costs from IOT and the other plaintiffs as
a payment of the 15% Preferential Return, along with the delegation of management to another
entity. Of the payment, IOT will recognize expense of $162,000, and a reduction of $1,476,000 in
liabilities during the second quarter of 2005. See Item 1 — Legal Proceedings under Part II,
Other Information, of IOT’s Form 10-Q for the quarter ended March 31, 2005. See also Note 5,
“Notes and Interest Payable” to the financial statements for the quarter ended March
31, 2005 included under Part I of IOT’s Form 10-Q for the quarter ended March 31, 2005.

          IOT would suggest that its enhanced disclosure in future filings to address the terms of the
obligations to Metra as it relates to the accounting treatment under SFAS 66 would be substantially
as follows to be included in an appropriate Note to the financial statements with respect to “Notes
and Interest Payable:”

     “In April 2002, the Company transferred all of its residential
properties to partnerships formed with Metra Capital LLC (‘Metra’).
The properties included the 60-unit Brighton Court, the 92-unit Del Mar, the 68-unit
Enclave, the 280-unit Meridian, the 57-unit Signature, and the 114-unit Sinclair,
all located in Midland, Texas, and the 106-unit Treehouse located in San Antonio,
Texas. Innovo Realty, Inc., a subsidiary of Innovo Group, Inc.
(‘Innovo’) is a limited partner in the partnerships that purchased the
properties. A former director of ARI, a related party, controlled approximately
11.67% of the outstanding common stock of Innovo. The transfer constituted 23% of
the total assets of the Company as of December 31, 2001. The transfer price for the
properties totaled $26.2 million, of which the Company received $5.3 million in cash
after the payment of $15.9 million in debt and various closing costs. Management
determined to account for the transaction as a refinancing transaction (rather than
a sale) in accordance with SFAS 66 ‘Accounting for Sales of Real
Estate.’ At the time of the transaction in April 2002, ARI was a related
party to the Company by virtue of ARI’s subsidiaries’ ownership of
approximately 28.5% of the then outstanding common stock of the Company, and the
fact that ARI and the Company had the same persons as executive officers. The
compensation price for the properties transferred totaled $26.2 million and possible
additional contingent consideration depending upon the sale price of the properties
by the Metra partnerships. The Company also received $5.2 million in value of 8%
non-recourse, non-convertible preferred stock of Innovo. Based upon the prospect of
additional consideration, ultimate continued involvement through the preferred stock
and the related-party nature of the former ARI director’s involvement, as well
as the Company retaining a right to approve the price of any ultimate sale by a
Metra partnership of the properties, and a process by which the Company effectively
guaranteed a preferential return to the Metra investors, management determined that
the transaction must be classified as a financing transaction and not a sale. The
Company continued to be able to exert control over the Metra partnerships, and no
sale was recorded. The Treehouse property was subsequently sold to a non-related
party in February 2004, and all of its debts have been repaid to the lenders at the
time of the sale. During August 2004, certain entities, including the Company,
instituted

Schedule 1 - Page 3

an action in a Texas state court against Innovo and Metra and others over
the process, as well as distribution questions. During April 2005, a resolution of
the litigation occurred settling all liabilities remaining from the original
partnership arrangements which included a return of the Metra investor equity,
prepayment of prospective asset management fees and miscellaneous fees and
transaction costs from the Company and the other plaintiffs as a payment of the
Preferential Return along with the delegation of management to another entity. Of
the payment made, the Company will recognize expense of $162,000 and a reduction of
$1,476,000 in liabilities during the second quarter of 2005.”

Please note that the $162,000 is composed of an $82,000 revision from 2002 (see Response to
Comment/Observation No. 3 below), $24,000 remainder of a receivable from Metra after the 15%
calculation has been revised, and $56,000 from the net settlement/resolution expense.

          Comment/Observation No. 3. We note that distributions have been accrued as a receivable from
Metra. Considering that your obligation to Metra appears to be a current financing cost, please
provide us with a SAB 99 materiality analysis as it relates to the historical periods and advise us
whether you intend to account for the distribution differently on a going forward basis.

          Response to Comment/Observation No. 3. Management has determined that the change in the
preferred return calculation is not material to the historic periods 2002, 2003 and 2004. Per the
SAB 99, management has reviewed the prior recordations in both a quantitative and qualitative
process, giving consideration to the items set forth below from SFAS 99:

    •

    whether the misstatement arises from an item capable of precise measurement or
whether it arises from an estimate and, if so, the degree of imprecision inherent in the
estimate

The issue arises from an item capable of precise measurement, so there is no
additional variance to consider due to an estimate.

    •

    whether the misstatement masks a change in earnings or other trends

The issue does not mask a change in earning or a change in other trends.

    •

    whether the misstatement hides a failure to meet analysts’ consensus
expectations for the enterprise

No analysts follow or publish expectations for the registrant to
management’s knowledge.

    •

    whether the misstatement changes a loss into income or vice versa

No change of income to a loss (or vice versa) results.

    •

    whether the misstatement concerns a segment or other portion of the
registrant’s business that has been identified as playing a significant role in the
registrant’s operations or profitability

Sc