DEAR BOB: When we bought our home about three years ago we were given a title insurance policy that showed the current condition of our title. There were no special problems noted, just the FHA mortgage we were taking over from our seller.

A few months ago our new neighbor said she had a survey made and it appears our driveway is about four feet on our neighbor's property. When I called the title insurance company I was told that our policy does not guarantee our boundaries, since we did not have a survey made at the time we bought. Is this correct? -- Barry R.

DEAR BARRY: Yes. In many communities it is customary to obtain a survey at the time a property is purchased and, for an extra title premium, the property boundaries as determined by the survey are insured. However, if you did not have this done, then the title insurer does not insure the location of your property boundaries.

Before either moving your driveway or paying your neighbor to buy a driveway easement, I suggest you have your own survey made. Mistakes are often made with surveys, so it is a good idea to have your own survey just to be sure the neighbor is correct.

DEAR BOB: A friend at work has successfully invested in small income properties. He has invited me to join his investment group of about 15 people. But he wants me to put up $10,000 now, so he can be sure my funds will be available when a suitable investment property is located.

Do you think it is a good idea to put up money before I know anything about the property to be purchased? -- Kevin W.

DEAR KEVIN: No. The concept you describe is called a "blind pool" real estate investment. It was quite popular a few years ago, when major real estate syndicators amassed millions of dollars of investor funds before purchasing suitable investment property.

The problem was too much money was chasing too few good properties and some syndicators paid too much for properties. But the 1986 Tax Reform Act greatly curtailed the realty syndication business and many of the blind pool syndicators went bankrupt.

I don't blame the syndicator for wanting you to put up your $10,000, so he knows you can be counted upon when a suitable property is located. However, putting up your money now without knowing how it will be invested does not seem like a good idea. Knowing the risks of group investments, I would pass up that opportunity.

DEAR BOB: How long should we save canceled checks and other records for our home and income properties? We have owned our home 23 years and keeping the records in the garage takes up considerable space. I heard an accountant say taxpayers only need to keep income tax records for three years. Is this correct? -- Kathy R.

DEAR KATHY: No. Save your real estate records and canceled checks forever. I hope you still have the purchase records from when you bought your home because you will need them to determine your cost basis when you eventually sell your home.

The accountant was correct that for normal transactions, such as credit card payments, you need only keep your canceled checks for three years, but real estate is a different matter.

DEAR BOB: I have been a real estate broker for 16 years and have never had this problem before. One of my salespeople listed a home and another agent in the office found a buyer whose offer was accepted by the seller.

All went well until about a week before the scheduled closing date, when the seller announced she had decided not to sell after all. She ordered us to return the buyer's earnest money deposit, which we did. Frankly, I think the buyers were relieved because they were having second thoughts about buying.

My two agents are bugging me to sue the seller for our real estate sales commission. Legally, we earned that commission and are entitled to it. But I am reluctant to sue because of the loss of goodwill in the community. Do you think I should sue the seller for our sales commission? -- Bruce C.

DEAR BRUCE: Yes. Your agents did all the work to sell the house and it is unfair to them that the seller changed her mind about selling. Frankly, she is lucky the buyers didn't sue her for specific performance of the sales contract.

I have received several letters like yours and it puzzles me why real estate brokers are so reluctant to sue defaulting sellers for the sales commission. I think the loss of goodwill is very speculative. If more agents sued for their sales commissions, property sellers wouldn't try to get out of paying the commission. Ask your attorney for further details.

DEAR BOB: Do you think mortgage interest rates will drop after the end of the year? I heard it will be smart to wait to buy a home until interest rates decline. What is your advice? -- Alan V.

DEAR ALAN: My advice is it is always a great time to buy a home, but at the buyer's price and terms. Waiting for interest rates to drop usually proves to be a losing game. If interest rates decline more buyers can afford to buy a home, so competition for homes will heat up and sellers will raise their prices.

I suggest you consider the after-tax cost of a home mortgage. For example, suppose you can currently get a fixed-interest-rate loan around 10 percent or an adjustable-rate mortgage with an initial interest rate of about 8 percent (of course, it will increase after the initial teaser interest period).

If you are in the 28 percent income tax bracket, after considering your income tax savings you will only be paying an after-tax interest cost of 7.2 percent on the 10 percent interest rate loan and only about 5.76 percent on the adjustable loan.

Waiting to buy a home is not a smart idea. In the meantime, you will be wasting money on rent with nothing to show but a pile of worthless rent receipts. If I can't persuade you to buy, an alternative idea is to lease a home with an option to buy. Negotiate a rent credit so part of your rent will be credited toward your down payment when you exercise your option to buy.

DEAR BOB: You often advocate leasing a home with an option to buy. However, I haven't seen any lease-options advertised in the newspaper. I talked with several real estate agents and they discourage the lease-option idea.

The concept sounds great, but where can I find a lease-option here? -- Daryl P.

DEAR DARYL: In many communities the real estate agents either do not know how to handle lease-options or they don't like them because they have to wait for their commission until the purchase option is exercised.

The best place to find lease-options is in the "houses for rent" classified want ad column. When you find a house you like, ask the owner to lease with an option to buy.

Many house landlords will gladly enter into a lease-option, especially if you tempt them a little. My favorite tactic is to offer a year's prepaid rent. Since most landlords are short of cash, they will often accept your offer. However, if you can't pay a year's rent in advance you might try offering a year's postdated checks, so the landlord will have no rent collection problem. I've found that idea works almost as well.

DEAR BOB: About three weeks ago we made a written offer to buy a house. The seller didn't like our offer, but made a counteroffer that was too high for us to accept. We told the agent we couldn't afford to pay any more than our original offer.

Last night the realty agent phoned to tell us the seller will accept our original offer after all. But now we have decided we don't want that house. Can the seller sue us if we don't buy? -- Hans W.

DEAR HANS: No. The seller rejected your original offer by making the counteroffer. After an offer has been rejected it cannot later be accepted. Unless you renewed your original offer in writing, there was no offer that the seller can later accept. For further details, consult your attorney.

DEAR BOB: Last summer we vacationed at a lovely resort area where my husband and I have decided we would like to retire in about 10 years. We talked with several local realty agents about buying a year-round home and they promised to contact us when one came available at a good price.

Last weekend an agent called us about buying a house at a probate sale. The agent says it is a bargain because the heirs want to split the money. Do you think we should buy a retirement home 10 years before we will use it? -- Connie R.

DEAR CONNIE: No. Don't buy any property you don't plan to use within six months. Buying a home for retirement in 10 years is not sensible because too many things can happen in the meantime to change your plans. Only if you can use the second home in the interim, either for vacations or seasonal rental, would it make sense to buy now.

DEAR BOB: Our home has been listed for sale over two months. The agent finally brought us a purchase offer. It was slightly below our asking price, which we know is reasonable. But the big problem was it contained a contingency for the sale of the buyer's current home.

I refused to tie up our home with such a contingency because there is no guarantee the buyer will be reasonable about his price. He currently is trying to sell it himself without a realty agent. Do you think I was wrong for rejecting this offer? -- Betty W.

DEAR BETTY: No. You were wise to reject a purchase offer with an open-end contingency clause for the sale of the buyer's current home. But I am surprised your realty agent did not suggest a 24-hour contingency release clause. This means you can leave your home on the market for sale and when another acceptable offer is obtained, you then give the first buyer 24 hours to either cancel his purchase or eliminate the contingency clause.

DEAR BOB: I am a disabled Vietnam veteran confined to a wheelchair. I am able to get to work but my mobility is impaired. Since starting to read your columns about a year ago I have begun reading books on real estate, and recently bought a small home where I just moved in.

Do you think in my situation I could invest in real estate to someday have a substantial second source of income? -- Joel R.

DEAR JOEL: Your disability may be an inconvenience, but it shouldn't stop you from profiting with real estate, either as an investor or as a licensee. I know a wealthy blind mortgage loan broker who never sees the properties on which he arranges loans and I know another broker who has a serious bone disease, yet he runs a busy realty brokerage.

I suggest you take all the evening real estate courses available at a nearby community college. Start with real estate principles, then take classes in appraisal, finance, law, investment and management. Continue your real estate reading program, too. You will eventually learn what you like best about real estate. For example, you might like to invest in high-yield discounted mortgages. Or you might prefer to invest in fix-up properties, as I do.

DEAR BOB: My wife and I were recently divorced. I got the house and she got a commercial investment property we owned. My problem is the house is too big for me, but selling isn't a viable alternative because I don't want to pay tax on my profit of almost $200,000.

I want to acquire a small apartment building where I can live in one apartment as the manager. I read your recent article about tax-deferred exchanges.

Am I correct that I cannot trade my home for apartments without paying tax? -- Dan R.

DEAR DAN: No. You can make a tax-deferred exchange of your home for an apartment building. However, you will first have to convert your residence into "like kind" rental property held for investment or use in a trade or business. That means you will have to rent it to a tenant before trading.

Internal Revenue Code 1031 does not say how long it must be rented before you can make a tax-deferred exchange, but most tax advisers suggest six to 12 months. However, a few tax advisers say the home is eligible for a tax-deferred trade the minute it is rented to a tenant.

After your home becomes eligible rental property, then you can make a direct trade for an apartment building. Or you can make an IRC 1031(a)(3) Starker delayed exchange by selling the house, having the sale proceeds held beyond your constructive receipt by an intermediary such as a bank trust department, within 45 days designating the property to be acquired and then acquiring the apartments within 180 days. For further details, consult your tax adviser.

DEAR BOB: I have heard the real estate market has bottomed in Houston and now is a great time to buy real estate there. Do you think now is a good time to buy in Houston? -- Ruth B.

DEAR RUTH: No. Since you don't live near Houston, I strongly urge you not to invest far away from your home. Most investors who buy real estate in distant cities lose money because they can't keep up with local realty trends.

Another problem is long-distance management is hard to control, especially if problems develop. Yes, you can hire a property management firm, but nobody has as great an interest in your real estate as you do. I suggest you invest within a maximum one-hour drive from your home, so you can watch your property closely.

DEAR BOB: We recently got into a messy situation while trying to buy a home and would like your opinion if we should take legal action. Our real estate agent phoned us about a new listing that she said was a bargain. So I took off from work to inspect the house. It was in perfect condition and the asking price was a steal. We immediately offered full price with a $5,000 earnest money deposit.

The listing agent stalled our agent until the next day, when the listing agent obtained an offer from her buyer. Since she knew what our offer was, her buyer offered $3,000 more. Both offers were presented to the seller the next evening. Since the listing agent's offer was $3,000 over the asking price, the seller accepted that offer.

Do you think we should sue the listing agent for failing to promptly deliver our offer to the seller? -- David R.

DEAR DAVID: Shame on your agent for disclosing to the listing agent that you were making a full-price offer. That was a bad mistake. Yes, it appears the listing agent stalled delivering your offer until the listing agent could obtain a better offer from her buyer.

You might want to file a complaint with the state real estate commissioner about the listing agent's conduct, but I wouldn't waste time suing the listing agent. Consult your attorney for more details.

DEAR BOB: I know you advocate buying run-down houses and fixing them up for profitable resale or long-term investment. But it seems to me this is very risky speculation if the market value doesn't go up. -- Juan P.

DEAR JUAN: A real estate speculator acquires property at a bargain price and hopes to quickly resell it with little or no improvements. But an investor makes profitable improvements, thus forcing the market value up.

For example, adding a second bathroom to a one-bathroom house usually raises the home's value by twice the cost of the second bathroom. Personally, I aim to raise the value of a fix-up home by $2 for each $1 spent on improvements. This "forced inflation" is investing, not speculating. Readers with questions should write Bruss directly at P.O. Box 280038, San Francisco, Calif. 94128.

1990, Tribune Media Services Inc.