WARNING CONCERNING FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.

This Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management's beliefs and on assumptions made by, and information currently available to, management. When used, the words "anticipate", "believe", "expect", "intend", "may", "might", "plan", "estimate", "project", "should", "will", "result" and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the factors listed and described at Item 1A Risk Factors in the Company's Annual Report on Form 10-K, which investors should review. See additional risk factors previously described in the Company's Form 10-K for the fiscal year ended December 31, 2007, Part II, Item 1A Risk Factors.

Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the Securities and Exchange Commission ("SEC") and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.

Overview

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

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. From time-to-time, we evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

Real Estate Held for Investment

Real estate held for investment is carried at cost. Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." ("SFAS No. 144"), requires that a property be considered impaired if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property. If impairment exists, an impairment loss is recognized, by a charge against earnings, equal to the amount by which the carrying amount of the property exceeds the fair value less cost to sell the property. If impairment of a property is recognized, the carrying amount of the property is reduced by the amount of the impairment, and a new cost for the property is established. Such new cost is depreciated over the property's remaining useful life. Depreciation is provided by the straight-line method over estimated useful lives, which range from five to 40 years.

We review the carrying values of our properties at least annually or 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.

Real Estate Held-for-Sale

Foreclosed real estate is initially recorded at new cost, defined as the lower of original cost or fair value minus estimated costs of sale. SFAS No. 144 also requires that properties held-for-sale be reported at the lower of carrying amount or fair value less costs of sale. If a reduction in a held-for-sale property's carrying amount to fair value less costs of sale is required, a provision for loss is recognized by a charge against earnings. Subsequent revisions, either upward or downward, to a held-for-sale property's estimated fair value less costs of sale are recorded as an adjustment to the property's carrying amount, but not in excess of the property's carrying amount when originally classified as held-for-sale. In addition, a corresponding charge against or credit to earnings is recognized. Properties held for sale are not depreciated.

Investments in Equity Investees

IOT may be considered to have the ability to exercise significant influence over the operating and investment policies of certain of its investees. Those investees are accounted for using the equity method. Under the equity method, an initial investment, recorded at cost, is increased by a proportionate share of the investee's operating income and any additional investment and decreased by a proportionate share of the investee's operating losses and distributions received.

Recognition of Rental Income

Rental income for commercial property leases is recognized on a straight-line basis over the respective lease terms. Rental income for residential property leases is recorded when due from residents and is recognized monthly as earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less.

Revenue Recognition on the Sale of Real Estate

Sales of real estate are recognized when and to the extent permitted by Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate." ("SFAS No. 66"), as amended by SFAS No. 144. Until the requirements of SFAS No. 66 for full profit recognition have been met, transactions are accounted for using the deposit, installment, cost recovery or financing method, whichever is appropriate. When IOT provides seller financing, gain is not recognized at the time of sale unless the buyer's initial investment and continuing investment are deemed to be adequate as determined by SFAS No. 66 guidelines.

Non-Performing Notes Receivable

IOT considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments. Any new note receivable that results from a modification or extension of a note considered non-performing will also be considered non-performing, without regard to the borrower's adherence to payment terms.

Interest Recognition on Notes Receivable

Interest income is not recognized on notes receivable that have been delinquent for 60 days or more. In addition, accrued but unpaid interest income is only recognized to the extent that the net realizable value of the underlying collateral exceeds the carrying value of the receivable.

Allowance for Estimated Losses

A valuation allowance is provided for estimated losses on notes receivable considered to be impaired. Impairment is considered to exist when it is probable that all amounts due under the terms of the note will not be collected. Valuation allowances are provided for estimated losses on notes receivable to the extent that the investment in the note exceeds management's estimate of the fair value of the collateral securing such note.

Liquidity and Capital Resources

General

Our principal liquidity needs are:

• meeting debt service requirements including balloon payments;

• funding normal recurring expenses;

• funding capital expenditures; and

• funding new property acquisitions.

Our primary source of cash is from the refinancing of existing mortgages, rents, receivables, and sale of assets. In 2008, we will refinance debt obligations as they become due and generate excess cash from operations and sale of properties. However, if refinancing and excess cash from operations does not prove to be sufficient to satisfy all our obligations as they mature, we may sell income-producing real estate, refinance real estate, and incur additional borrowings secured by real estate to meet our cash requirements.

Financial position

The following impacted our balance sheet as of September 30, 2008, as compared to our balance sheet as of December 31, 2007:

The sale of six apartment complexes; Brighton Court, Del Mar, Enclave, Meridian, Signature Place, and Sinclair Place in January 2008 for a sales price of $49.6 million, eliminated the balance of our Real estate held for sale and Liabilities related to assets held for sale. In addition, the proceeds from the sale increased our Receivables from affiliates for transfers to our advisor per our advisory agreement.

Cash flow summary

The following summary discussion of our cash flows is based on the consolidated statement of cash flows from "Item 1 Financial Statements" and is not meant to be an all inclusive discussion of the changes in our cash flows for the periods presented.

Cash and equivalents totaled $38,000 and $104,000 as of September 30, 2008 and 2007, respectively. At September 30, 2008 cash provided by operating activities was $4.4 million, cash provided by investing activities was $21.9 million, and cash used in financing activities was $(26.5) million.

Cash provided by operating activities increased from the prior period due to receipts on our accounts receivables, including our insurance proceeds. In addition we have extended the payment of our liabilities. These activities have increased our cash from operations by $4.4 million.

Cash flows from investing activities increased primarily due to the cash receipts from the sale of the Midland Odessa properties. We had no sales in the prior period. Our use of cash was primarily due to the transfer of cash to our advisor. Per our cash management agreement, excess cash is transferred to our advisor, an affiliated entity.

Cash flows used in our financing activities increased from the prior period. This is due to paying off the mortgages associated with the sale of the Midland Odessa properties. In addition, we paid off the mortgage on the Falcon Point apartment complex. The prior period activities were from the refinancing of existing debt of $7.4 million with new mortgages of $15.4 million.

We did not pay quarterly dividends in 2008 or 2007.

Results of Operations

Our current operations consist of three commercial buildings, which include an office building, a shopping center and a commercial warehouse. Our discontinued operations consist of seven apartment complexes. Six of these complexes were sold in January and one of the apartments was reclassified to discontinued operations in May 2008 after the Company's decision to terminate the operations at the property subsequent to damages incurred from a tornado.

The discussion below is not a line by line explanation of the variances within the classifications of our income and expense items. Instead, we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shares. This discussion should be read in conjunction with our Consolidated Statements of Operations as presented in Part I, Item 1 of this 10-Q.

We reported a net income applicable to common shares of $6.4 million or $1.54 per common share for the three months ended September 30, 2008, as compared net income applicable to common shares of $180,000 or $0.04 per common share for the same period ended 2007. Our net income applicable to common shares for the nine months ended September 30, 2008 was $26.2 million or $6.30 per common share as compared to a net (loss) applicable to common shares of $(705,000) or $(0.17) per common share for the same period ended 2007.

Results of operations for the three months ended September 30, 2008 as compared to the same period ended 2007;

Property Revenue and Operating expenses

Although our revenues and operating expenses from our continued property operations are relatively consistent as compared to the prior period, a decrease in occupancy within the commercial portfolio combined with a slight increase in our overall operating and general and administrative costs caused our overall operating loss to increase as compared to the prior period.

Other Income Expense

Interest income has decreased primarily due to no longer accruing interest income on our notes receivables from Unified Housing Foundation, Inc., an affiliated entity. The notes are cash flow notes and interest income is recorded when received.

Mortgage loan interest expense has decreased primarily due to the mortgages that were paid off with the sale of the six Midland Odessa properties in January of 2008.

Gain on involuntary conversion is due to the receipt of insurance proceeds from the claim filed for the tornado damage incurred on the Falcon Point apartments.

Net income fee expense increased due to the increase in net income as compared to the prior period.

Discontinued Operations

Discontinued operations relate to seven apartment complexes; six which were sold
in January of 2008 and one apartment whose operations were discontinued after
being damaged by a tornado. The results of these operations are shown below.



                                                             For the Three Months Ended
                                                                    September 30,
                                                              2008               2007
Revenue
Rental                                                     $        -        $       1,835
Property operations                                                269               1,084

                                                                  (269 )               751

Expenses
Interest                                                            25                (530 )
General and administrative                                          -                  (11 )
Depreciation                                                        -                 (141 )

                                                                    25                (682 )

Net income (loss) from discontinued operations before
gains on sale of real estate                                      (244 )                69
Net income/sales fee to affiliate                                  687                  -

Income from discontinued operations                                443                  69
Tax (expense)                                                     (155 )               (24 )

Income from discontinued operations                        $       288       $          45

Results of operations for the nine months ended September 30, 2008 as compared to the same period ended 2007;

Property Revenue

Our property revenues from continued operations have declined due to a decrease in occupancy within our commercial portfolio.

Operating Expenses

Property operations expense increased due to an adjustment to reflect actual real estate taxes paid. The majority of the increase was from Travelers land in which we recorded a $360,000 adjustment for property taxes. The remaining increase is due to an overall increase in operating costs.

Other Income Expense

Interest income has decreased primarily due to no longer accruing interest income on our notes receivables from Unified Housing Foundation, Inc., an affiliated entity. The notes are cash flow notes and interest income is recorded when received.

The increase in other income is due to a $230,000 tax refund received in the second quarter of 2008.

Mortgage loan interest expense has decreased primarily due to the mortgages that were paid off with the sale of the six Midland Odessa properties in January of 2008.

Gain on involuntary conversion is due to the receipt of insurance proceeds from the claim filed for the tornado damage incurred on the Falcon Point apartments.

Net income fee expense increased due to the increase in net income as compared to the prior period.

Equity in investee's loss increased from the prior period. This is due to our pro-rata share of the equity on investments in which we own an interest of 20% or more which are not consolidated.

Discontinued Operations

Discontinued operations relate to seven apartment complexes; six, which were
sold in January of 2008, and one apartment whose operations were discontinued
after being damaged by a tornado. The results of these operations are shown
below.



                                                               For the Nine Months Ended
                                                                     September 30,
                                                               2008                2007
Revenue
Rental                                                     $         982       $       5,405
Property operations                                                1,214               2,853

                                                                    (232 )             2,552

Expenses
Interest                                                          (2,533 )            (2,373 )
General and administrative                                          (867 )               (17 )
Depreciation                                                         (49 )              (422 )

                                                                  (3,449 )            (2,812 )

Net loss from discontinued operations before gains on
sale of real estate                                               (3,681 )              (260 )
Gain on sale of discontinued operations                           29,789                  -
Net income/sales fee to affiliate                                 (4,222 )                -

Income (loss) from discontinued operations                        21,886                (260 )
Tax benefit (expense)                                             (7,660 )                91

Income (loss) from discontinued operations                 $      14,226       $        (169 )

The Company has historically engaged in and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arm's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in the best interest of our Company.

Income Taxes

Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses. IOT has alternative minimum tax credit carryforwards available for 2008 and has a loss for federal income tax purposes for the first nine months of 2008; therefore, it recorded no provision for income taxes.

At September 30, 2008, IOT had a net deferred tax asset of approximately $4.5 million due to tax deductions available to it in future years. However, as management cannot determine that it is more likely than not that IOT will realize the benefit of the deferred tax asset, a 100% valuation allowance has been established.

Inflation

The effects of inflation on IOT'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, IOT 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 IOT's business, assets or results of operations.