DEAR BOB: My wife and I plan to buy our first home in a few months. We have been looking at the fancy new homes but they seem so expensive. As I am very handy and was formerly a carpenter and carpet layer, I would prefer we buy an older home that we can gradually improve to raise its market value. A friend wants to sell us his two-bedroom house but it has no room to expand into a three- or four-bedroom home, which is what most people seem to want here. Do you think we should we buy a new home and forget about buying a home needing improvements? -- Sean J. DEAR SEAN: Older homes needing modest improvements are, in my opinion, today's best real estate bargains. They offer potential for upgrading and market value appreciation. Brand new homes have all the latest features, but they usually offer little or no immediate profit potential.

Sound, well-located older homes needing minor improvements, such as paint, repairs, carpets, appliances and landscaping, have tremendous potential to raise their market value much more than the work costs. Of course, be cautious about not overimproving above neighborhood standards.

That two-bedroom house you mentioned should probably be avoided because, as you pointed out, most families want three- or four-bedroom homes. If there is no way to expand, its appeal to prospective buyers will be limited and its market value will be held down. Keep looking; you'll find lots of larger homes crying out for profitable improvements that, with your skills, you can make at minimal cost. DEAR BOB: Several months ago you wrote about how to handle an uncooperative mortgage lender when the property has declined in value below the loan balance. That happened to us when we bought a condo as an investment about five years ago. The complex has declined badly because many owners stopped paying their monthly maintenance fees. The result was foreclosures and a poor-looking project. Fortunately, our tenant is excellent. But we didn't like the 13 percent interest rate mortgage and our negative cash flow. There is virtually no resale market in this complex due to all the foreclosures and the poor maintenance. I wrote to our lender about reducing the interest rate to cut our monthly payment but got back a nasty letter from a "loan counselor" refusing cooperation. Then I sent the lender's president a copy of your article, suggesting as a last resort that the property be quit-claim deeded to the lender. Within a week I got a phone call from a vice president offering to reduce the interest rate to 8 1/2 percent, which will give us a break-even cash flow. I thought you should know it pays to complain to top management. -- Grace L. DEAR GRACE: Thank you for sharing your successful experience renegotiating with a mortgage lender. Unfortunately, most loan clerks lack authority to handle loan problems like yours, and they don't realize the adverse lender consequences of failing to be responsive. Many billions of dollars of foreclosed mortgages could have been avoided if lenders had been more cooperative instead of stonewalling thousands of borrowers.

The sad fact is mortgage lenders often are not in a position to renegotiate mortgages. But after they foreclose and own the property, they can sell on terms far more liberal than the original borrower wanted to renegotiate. Lenders own so many foreclosed condos you would think they would wise up to avoid more condo foreclosures but they are reluctant to do so. As you discovered, lenders do not want to own property, so threatening to quit-claim deed another condo is sure to get attention. DEAR BOB: I am interested in your opinion as to whether the October stock market crash is predicting a real estate crash later this year. The stock market usually forecasts about six months ahead what is likely to happen to the national economy. Do you think I should sell my real estate, which includes my home, six rental houses and one 22-unit apartment house? -- Claudia P. DEAR CLAUDIA: The real estate market is highly localized and is not national in scope, as is the stock market. Right now, real estate is in a bad depression in states such as Texas, Oklahoma and Louisiana. But many other areas, such as the Northeast and parts of California, are booming.

Also, the type of property makes a big difference. Office buildings are overbuilt everywhere, apartment vacancies are rising, but home values seem to be doing well except in the oil patch.

Unless you notice unfavorable trends in your community, I would not recommend selling your properties, which offer excellent diversity. If you spot declining prices or increasing inventories of unsold properties, then you might want to consider selling if you have a more profitable use for the money. I do not expect a real estate crash because property owners are very resilient. They usually hold for long-term investment profits. DEAR BOB: During 1988 we expect to sell our large old home and move to Florida where we will buy a modest house or condo. But, as we live in a high-cost area and will be moving to a much less expensive town, we are worried about the tax we will owe on our home sale. It should sell for about $350,000 net after sales commission and other expenses. We are eligible for that $125,000 old folks' tax exemption you often write about. However, our net profit will be around $200,000 as we bought this house many years ago. Is there any way we can avoid tax on the remaining $75,000 of our profit? -- Bryan M. DEAR BRYAN: Yes. You can combine the "rollover residence replacement rule" tax deferral of IRC 1034, available to home sellers of any age, with the "over 55 rule" $125,000 home sale tax exemption.

I presume you are 55 or older, have owned and lived in your principal residence at least three of the five years before the sale and have never used this tax break before. If your home sells for $350,000 net after sales costs, subtract your $125,000 over-55 exemption to arrive at a $225,000 "revised adjusted sales price."

Now you can use IRC 1034, just like any home seller, to defer tax on the remaining $75,000 sale profit if you buy a replacement principal residence of equal or greater cost within two years before or after the sale. That means you will need to buy a home costing at least $225,000 to avoid owing tax on the remaining $75,000 profit.

But let's suppose you buy a home costing $200,000. Then you will owe tax only on the $25,000 difference ($225,000 minus $200,000) and can defer tax on the remaining $50,000 profit. Consult your tax adviser for full details. DEAR BOB: I am retired, have about $400,000 in CDs, stocks, bonds and mutual funds, and would like to increase my income. A friend at the Elks Club invests in discounted second mortgages that, he says, earn him at least 18 to 20 percent yields. Occasionally, he has to foreclose and take the property back but then he fixes it up and sells it for a big profit. I would like to try getting involved in this but I question if buying mortgages with such high yields is a violation of the usury law? -- Tim H. DEAR TIM: There is nothing illegal or fattening about buying existing mortgages at a discount that will yield you a return higher than the state usury limit. It would be illegal, however, for you to make a direct loan to a borrower at an interest rate higher than the usury rate.

For example, suppose you run a newspaper classified ad offering to buy existing mortgages at a discount. You get a phone call from an individual who sold his home and took back a second mortgage at 8 percent interest. It now has a $10,000 balance with 10 years remaining. The borrower is happily making his $121.32 monthly payments and will still owe the $10,000 at 8 percent interest if you buy this loan at a discount for something less than $10,000.

Let's say you want an 18 percent yield on your money. That means you will offer the mortgage's owner $6,733.49. The $3,266.51 discount plus the 8 percent interest rate the borrower pays will produce your 18 percent desired yield.

High-yield discounted mortgages are ideal investments for retirees who have time to carefully investigate before buying. But never buy a discounted mortgage on a property unless you wouldn't mind owning it if foreclosure becomes necessary. For more details, I highly recommend you study Jimmy Napier's classic book "Invest in Debt." You can get a copy for $12, sent to him at P.O. Box F, Chipley, Fla. 32428. DEAR BOB: We are considering buying a home in a new subdivision now being developed. However, we are uncertain if we should first sell our old home or first sign a contract to buy the new home. Which should come first? -- Linda Ann M. DEAR LINDA ANN: Sell your current home first. Then you'll be certain how much cash you'll have for the down payment on your new home, you won't be under pressure to accept a low offer, and you won't have to make payments on two homes at the same time.

Talk to the home builder now, though. Many builders offer trade-in programs. Some will even buy your old home and relieve you of selling it. Or you might be able to tie up a new home with a contingency for the sale of your old home at an agreed price. Depending on how anxious the home builder is, he may be very eager to negotiate. DEAR BOB: I am considering buying a very run-down apartment building that, I think, will be an excellent commercial property site in a few years. My accountant says the new tax law requires me to depreciate the building over 27 1/2 years. That is far longer than the structure will last. If I buy, considering the bad condition of the building, can I depreciate it over 10 years? -- Carlo C. DEAR CARLO: No. The Tax Reform Act of 1986 has no flexibility for depreciation of real estate. Residential rental buildings must be depreciated over 27 1/2 years and commercial structures must be depreciated over 31 1/2 years. Your accountant is correct. DEAR BOB: When we bought our home about five years ago, my wife and I were complete novices about home buying. We foolishly offered the seller's full asking price, which she gladly accepted. The real estate agent made no attempt to help us get the house for a lower price. Although the home has appreciated handsomely in market value since then and we aren't complaining, we often wonder if we could have bought the home for less if we had offered a lower price. When the spring weather gets better, we want to start looking for a larger home to buy in a better school district. Can you give us guidance on how to make an offer bid that will get us a house at a fair price without overpaying as we feel we did last time? -- Wylie R. DEAR WYLIE: Before making an offer bid to buy a house you like, please understand both the listing agent and the selling agent represent the seller. Unless you sign a written agreement making an agent your personal agent, nobody legally represents you. Some agents argue a "dual agent" can represent both buyer and seller in the same transaction, but that is a very precarious situation because of the agent's inherent conflict of interest.

The best protection a buyer has against paying too much for a home is to insist, before making an offer, that the agent prepare a written competitive market analysis form showing recent sales prices and terms of similar nearby homes. This is like a "mini-appraisal" because you add or subtract value for the pros and cons of the home as compared with recent neighborhood sales.

You may discover the house is a bargain at its full asking price. If there is competition from other buyers, make a quick offer to close at the asking price. Be very cautious about offering the full asking price, though. In a competitive market I've seen sellers reject quick full-price offers and raise their asking price.

For example, a few weeks ago I bought a house with a $150,000 asking price for $148,500. Although the house was worth its full price, I felt a $150,000 offer might have made the seller think the asking price was too low.

As you discovered, buyers feel better about a home purchase if they can negotiate a little on the price. I used to recommend offering 5 percent to 10 percent below the asking price because the buyer can always raise the offer. But in recent years, thanks to computers and more timely sales information, home sellers often price their homes very close to market value and won't accept offers much below their asking prices.

Except in seller's markets, where buyers outnumber homes for sale, there is usually still room to negotiate. You'll feel much better if you first get a competitive market analysis so you know what the home is worth before you make a purchase offer. DEAR BOB: I enjoyed your recent explanation of IRC 1034's "rollover residence replacement rule" and how to defer tax by purchasing another home of equal or greater value within two years before or after the sale. We sold our home in 1987 and are now living in Spain. If we buy a house or condominium here, can it qualify us to defer tax on our home sale? -- Renaldo W. DEAR RENALDO: Yes. IRC 1034 sets no limitations on where the principal residence replacement can be located. Of course, its purchase price must equal or exceed the old home's adjusted (net) sales price if all your profit tax is to be deferred. Consult your tax adviser for full details. DEAR BOB: I have heard apartment buildings can now be bought for multipliers of seven to eight times the gross rental income. Do you think now is a good time to buy such property? -- Viola P. DEAR VIOLA: When you are buying income property, forget about gross rent multipliers. The reason is this is a seller's sales technique that fails to consider the property's expenses and resulting net income.

A better approach is to capitalize the net income, disregarding depreciation and mortgage payments. For example, suppose you find a building producing $20,000 annual net income. If similar nearby buildings sell for an 8 percent capitalization rate, dividing $20,000 by 8 percent shows the property is worth about $250,000. However, if 10 percent is the local "cap rate," then the building is worth about $200,000.

Personally, I like single-family rental houses, which are usually easier to buy, finance, manage and profitably resell. DEAR BOB: We recently visited several Florida towns where we might like to retire in about five years. There seem to be many real estate bargains for sale, especially very desirable condominiums. We are thinking of returning, perhaps in May or June when the "snowbirds" have left, to buy a condo then and rent it until we are ready to move in after retirement. What do you think of this plan? -- Hildy T. DEAR HILDY: Not much. So many things can happen in five years to change your retirement plans that I must strongly urge you not to purchase a condo now. Buy only real estate that you can use within, at the most, six months after purchase.

I've said many times condominiums can be great personal residences but they are not terrific investment properties. Rents are usually too low to pay the mortgage payments, homeowner fees, property taxes and repairs, so a negative cash flow often results. When you're ready to retire in five years, that's the time to buy your retirement home. In the meantime, investigate the alternatives, but don't buy too soon. DEAR BOB: I wrote you several months ago about biweekly mortgages and you replied they were not available from many lenders. But I recently read that Fannie Mae expects to soon start buying these mortgages. As I'm considering refinancing my 12 percent interest rate home loan, do you think I should get a biweekly mortgage? -- Rupert H. DEAR RUPERT: That is a difficult question to answer. As you may know, the idea behind a biweekly mortgage is to make 26 loan payments each year, every other week, instead of the customary 12 monthly payments. Each biweekly payment is one-half of a normal monthly payment.

To illustrate, suppose a loan's monthly payment is $700. Converting this to a biweekly loan makes the payment $350 every two weeks. As this is the equivalent of 13 monthly payments each year, the loan pays off in about 20 1/2 years. The result is a huge saving of loan interest.

The two big problems with biweekly mortgages have been: (1) most loan servicers have not had the computer ability to handle biweekly payments and (2) there was virtually no secondary mortgage market where originating lenders could sell these loans.

Now Fannie Mae claims to have solved these problems by developing a computer program it will sell to loan servicers so they can collect the payments and Fannie Mae can buy these loans. Most S&Ls, banks and mortgage brokers that sell loans to Fannie Mae will probably offer biweekly mortgages soon.

To make biweekly mortgages work, payments must be automatically withdrawn from the borrower's checking or savings account every two weeks. This automatic collection feature is so important that if the borrower doesn't have the money in the account three times, Fannie Mae's program converts the loan to a standard, 30-year monthly payment mortgage.

Fannie Mae spokespeople tell me the biweekly mortgage will at first only be offered with a fixed interest rate. Later on, they hope to offer adjustable-rate biweekly mortgages. Since a fixed-rate mortgage wouldn't save you much interest, you might like to wait to see how the biweekly program works out.

Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif., 94101.