DEAR BOB: Within the next few months we plan to sell our home. The local realty agents tell us many buyers are holding back in hopes that mortgage interest rates will drop. I doubt that will happen. Our thought is to sell our house and take back the mortgage for retirement income. If this sounds like a good idea, please tell us how to set up our sale. The house is worth about $80,000. Since we are over 55, we know our profit is tax exempt, but the extra interest on the mortgage sure interests us. Jim M.

DEAR JIM: You are extremely smart to sell your home on an installment sale, not only for the safe interest income but also to ease the sale which, in many communities, can be difficult to finance otherwise.

In addition, you'll be "investing" your money at high return in a property you already know is safe and secure.

If you sell for $80,000, try to get a cash down payment of 10 to 15 percent of the sale price. This gives the buyer sufficient equity to avoid thinking of defaulting if he should lose his job or get sick.

Suppose you sell for $80,000 with an $8,000 cash down payment. You might wish to take back the $72,000 balance on an installment sale mortgage at, perhaps, 10 percent interest (it state usury law permits). If you already have a first mortgage on the property, ask your attorney to draw up a $72,000 wrap-around, all-inclusive mortgage that gives extra benefits.

If you take back a $72,000 mortgage at 10 percent for 25 years, each month you'll receive $654.28. That's $196,284 total, of which $124,284 is interest earnings. In other words, you've doubled your sales price. See your tax adviser or attorney for full details of installment sale benefits.

DEAR BOB: How long should a purchase offer be open for the seller's acceptance? Our agent wrote up a 15-day limit on our offer. During that time, another buyer offered more money and we lost the house. Birdie M.

Dear Birdie: Fifteen days is far too long. You were a victim of "offer shopping." That means your agent or the seller told another buyer about your offer in hopes the other buyer would offer more. Next time, only make your purchase offer valid for one or two days to prevent offer shopping.

DEAR BOB: Our realty agent told us we could sell our deplux and use the money received to buy another income property, thereby deferring our profit tax. We did this in 1976. The IRS audited our tax returns and made us pay $9,000 tax on our profit. Is this right or should we appeal? Mac D.

DEAR MAC: The IRS is correct. You did not have a tax-deferred "like kind" exchange. Realty agents are trained to sell property, not to give tax advice. Next time, see your tax adviser for tax information.

If is not possible to sell one investment property and buy another with the proceeds without paying tax on your profit. However, such a sale and replacement is possible if both properties are your principal residence.

It appears your realty agent thought the same rule applies to investment property. It doesn't. You learned a costly lesson.

DEAR BOB: We appreciate your advice to get a lease-option on a home, which we did. The purchase option expires in two years and we intend to exercise it. In the meantime, what can we do to protect our rights in the property so that the seller doesn't sell it someone else? Carmen A.

DEAR CARMEN: Record your option at the county recorder's office to give public notice of your option to buy the house.

However, most owners don't want you doing so, as it clouds the title if you don't exercise the option. Ask your attorney if you can record a memorandum of option to give the same notice to prospective buyers.

Even if you don't record the option or a memorandum of it, in most states, rights of occupants of property have priority even over rights of a buyer of the property. But if you suspect your seller might go bankrupt before you exercise your purchase option, talk to your attorney because a bankruptcy trustee can usually reject an option such as yours unless its terms are reasonable at the time of the owner's bankruptcy.