Declining interest rates and depressed real-estate prices are creating the most favorable combination of economic factors for small-scale real-estate investment since the 1970s.

Sharp-eyed investors around the country are quietly buying seller-financed second-mortgage notes yielding 20 to 25 percent a year -- relics of home sales in 1981 and 1982, when bank loans were prohibitive. They're packing them into their personal pension-plan portfolios, tax-free, or using them to help finance additional note purchases.

Many investors also are returning to the real-estate standbys of the mid-1970 go-go years: single-family rental homes, duplexes and quadruplexes. But this time they're insisting on something old-fashioned at the bottom line every month: positive income flows rather than the losses that were common five years ago.

John W. Schaub III of Sarasota, Fla., is a good example of where small-scale real estate investment is heading. Schaub has bought single-family rental houses in eight states in recent months, and insists that every one produces a positive cash flow.

"I wouldn't buy them any other way," Schaub says. "I won't touch anything unless the combination of price, financing and locat rental demand produces income. I'm not banking on double-digit appreciation of the houses I buy -- that was another era. I'm counting on rents, rents, rents, like in the good old days."

Schaub's investments have not been only in Florida, where he manages properties himself, but in northern and midwestern states where home prices have been particularly attractive relative to rents.

Schaub looks for modest-priced homes -- ideally carrying FHA or VA financing -- whose owners haven't been able to sell them for months (usually because they haven't marketed them properly). His typical recent qcquisitions, for example, have been FHA-financed subdivision homes with loan balances in the $50,000 range and mortgage payment of $450 to $500 a month.

With inflation pushing his properties up by 5 percent or more, and tough economic conditions keeping rents high, he expects to reap an excellent combination of tax-sheltered regular income and capital gaains over the next several years.

Schaub "absolutely never" finances investment puchases with loans that are not fixed-rate and below current market levels. "Get hooked into a variable-rate mortgage, and your're suddenly not an investor anymore," he says. "You're rolling dice. You're not in control of the situation."

A seasoned real estate investor with similar back-to-basics views but different property objectives is Gay B. Thompson, a center city Washington, D.C., real-estate broker. Long active in the nationwide "creative real estate" movement, Thompson has changed her focus from single-family rental houses to duplexes and four-unit rental properties.

"Income is the name of the game in 1983," says Thompson. "And the best income with the least hassles is now in duplexes and quadruplexes."

A typical investment for one of Thompson's clients recently was a $69,000 duplex town house carrying 12 percent financing, yielding $800 a month in rents, and requiring only a small down payment.

Rent-to-price ratios of 1 percent (that is, one month's rental income equals 1 percent of the price paid for the property) haven't been seen in the high-priced Washington, D.D., area for over a decade. In this case, though, the $800 a month is equivalent to 1.2 percent of value -- a sound economic investment, in Thompson's view.

Like many others who are tuned into the emerging opportunities in the new year, Thompson also buys "paper" at high, double-digit yields. "Paper" means second-mortgage notes or deeds of trust, usually from home sellers who assisted buyers by "taking back" part of the financing during the past three years.

Estimates vary, but national mortgage-market experts say hundreds of millions of dollars in such notes were generated in 1982 alone. Often they're $7,500 to $20,000 or more in size, and carry rates of 11 to 13 percent. Owners holding such notes have been selling them for cash through real-estate brokers and attorneys at large discounts that often produce yields of 20 percent and more for the note purchaser. Such notes are available in markets across the country -- if small-scale investors simply take the time to track them down. Thompson advises, however, that you thoroughly check the equity in the propertly securing the note, and the creditworthiness of the borrower, before signing up for that fat return.