Q. DEAR BOB: I own a restaurant that needs to enlarge its parking lot because there is virtually no street parking available in the vicinity. My business would have many more customers if I had more parking space. A neighbor is willing to sell his adjoining building to me so I can tear it down for more parking.

However, when he talked to his accountant and found out the huge capital gain tax he will have to pay, he refused to sell to me. Do you have any ideas how I can overcome the seller's objection so I can buy this property? -- James R.

A. DEAR JAMES: Your situation is a classic example of thousands of real estate investors who would love to sell properties they have owned many years but would be hit with big profit taxes if they did so.

President Bush has proposed lowering the capital gains tax, but the Democrats refuse to realize a lower tax rate will increase overall tax revenues. Your circumstance shows how high taxes are stopping change of realty ownership.

One solution to your problem would be to lease the adjoining property with an option to buy it whenever the seller's capital gain profit tax is lowered to, perhaps, 20 percent or lower. The option also could give the seller the right to waive the tax reduction requirement. For further details, check with a local real estate or tax attorney.

Q. DEAR BOB: We are buying a house direct from the seller. There is no real estate agent involved. We are able to pay all cash for this house without having to get a mortgage. Under these circumstances do you think we should save the estimated $880 cost of a title insurance policy? -- Nancy V.

A. DEAR NANCY: No. When buying direct from the seller without a mortgage you need an owner's title insurance policy more than ever. If a title problem occurs later, such as a forged signature in the chain of title, without title insurance you could lose your entire investment.

If you were obtaining a mortgage, the lender would insist upon a lender's title insurance policy. That tells you as an owner you also should insist upon an owner's title insurance policy. Never, buy any real estate without title insurance.

Q. DEAR BOB: For almost 20 years I have owned an apartment building. Now I am thinking of selling it and carrying back a mortgage for retirement income. But I am unsure how to value my building. I recall when I bought it I paid eight times the gross rental income. Is that still the custom? -- Phillip C.

A. DEAR PHILLIP: Only innocent first-time buyers who don't know better purchase income property based on its gross rent multiplier. A gross rent multiplier fails to consider the building expenses. Of course, if you can find a dumb buyer willing to purchase on the basis of gross multiplier, consider yourself lucky.

Smart buyers purchase income property based on its "cap rate." That means the net income is capitalized. The local cap rate in your town is determined by using recent sales of comparable properties and dividing your building's net income by the cap rate.

Suppose your building has $50,000 annual net income (excluding depreciation and mortgage interest) and you find an 8 percent cap rate is appropriate. Your building is, therefore, worth $625,000. If a 9 percent cap rate is used, then its value is $555,555. The higher the cap rate, the lower the building's value.

Q. DEAR BOB: We are considering selling our home and have interviewed several real estate agents. Most agents want a 6 percent sales commission, but we found one who will take a 5 percent commission. However, the best agent who has sold the most homes in our neighborhood charges a 7 percent commission. She is not the most likable person, but it is hard to argue with her success record. Do you think a 7 percent sales commission is too high? -- Henry R.

A. DEAR HENRY: Yes. But if I were in your situation in a slow buyer's market I would list my house for sale with that successful agent who charges a higher-than-average sales commission.

Spending a few extra dollars to get your home sold quickly is petty cash. However, I would not sign a listing for longer than 90 days just in case the agent turns out to be ineffective.

Q. DEAR BOB: I know you invest in run-down fixer upper houses that you acquire at bargain prices. What is the best way to find these bargains? -- Ronnie S.

A. DEAR RONNIE: There are so many bargain properties available it is impossible to inspect them all for possible purchase. Virtually all the houses I purchase are brought to me by real estate agents who know I am looking for run-down "fix-me-up" houses that can be acquired at a good price and on good terms.

I also read newspaper classified want ads, drive through neighborhoods where I want to buy houses, ask friends and neighbors, phone local banks and S&Ls to learn of their REO (real estate owned) properties, follow the published lists of mortgage defaults and foreclosure sales and read probate and sheriff's sale notices. But the best source of bargain properties is real estate agents who know what kind of property you want to buy.

Q. DEAR BOB: When buying a home, how much must the earnest money deposit and the down payment be? Is it a certain percentage of the home's purchase price? -- Karen T.

A. DEAR KAREN: There is no absolute rule as to how large the earnest money deposit and the down payment should be when making an offer to buy a home.

But the earnest money deposit should be large enough to impress the sellers so they believe that you are serious about buying the home and that you will probably complete the purchase as agreed. I once bought a $100,000 property with only a $100 earnest money deposit, but I am still surprised the seller accepted my offer because my deposit was so low. Most real estate agents suggest the deposit be at least 1 percent to 5 percent, or more, of the purchase price.

As for the down payment, it will depend on the type of mortgage you expect to obtain. If you qualify for a VA home loan for as much as $184,000, no down payment is generally required, but you will need cash for closing costs. FHA mortgages usually require down payments of about 5 percent of the purchase price. PMI (private mortgage insurance) mortgages require at least 5 percent to 10 percent down payments. Your real estate agent can give you an idea about the appropriate earnest money deposit and down payment for the home you want to buy.

Q. DEAR BOB: I have about $45,000 equity in a four-residence complex that I would like to trade for a commercial building. I can add some cash, if necessary, to make the trade feasible. But I am having difficulty finding a real estate agent who understands tax-deferred exchanges. How can I find such an agent? -- Rhonda C.

A. DEAR RHONDA: Phone the local Board of Realtors for a list of their Traders or Exchange Club members. These real estate agents meet to learn about tax-deferred exchanges and to discuss properties their clients wish to exchange. If you work with a knowledgeable exchanger you will find your trade can be both a pleasant and profitable experience.

Q. DEAR BOB: My hairdresser told me that because I'm getting ready to sell my home I can deduct from my profit tax the costs of painting and fixing up my home to prepare it for sale. But I've never heard of this deduction. Please clarify -- Helen H.

A. DEAR HELEN: I'm certain your hairdresser means well, but the beauty shop is not the best place to receive income tax information. The home sale fix-up rule of Internal Revenue Code 1034(b)(2) says you can subtract from your home's gross sales price any fix-up costs contracted within 90 days before the sales date and paid for within 30 days after the sale closes.

Home fix-up expenses normally have no tax significance. But when you sell, costs such as painting, cleaning and repairing can be subtracted from your home's sales price to arrive at its adjusted sales price. For further details, please consult your tax adviser.

Q. DEAR BOB: I have been watching our local real estate market for the last year trying to figure out how to make some profits. But with prices stagnant and the tax shelter benefits taken away in 1986 by those loonies in Congress I don't see any way to make money in real estate today, do you? -- Harold C.

A. DEAR HAROLD: Yes. Even in stagnant markets and without income tax incentives for real estate investments, it is possible to earn handsome profits by purchasing below-market run-down properties and fixing them up to raise their market value by more than the renovation cost.

My personal goal is to increase the value by $2 for each $1 spent on improvements. Even if you don't always reach this goal, you should be able to come close enough to earn excellent profits although your local realty market may not be appreciating.

Q. DEAR BOB: Your column is required reading at the real estate brokerage where I am a sales agent. I've noticed in recent months you have often encouraged buyers to acquire homes on lease-options. But my broker discourages lease-options. She says there isn't enough money for the sales commission. Is there any way a lease-option can be used by real estate agents, so we get a sales commission? -- Rory H.

A. DEAR RORY: Yes. I've acquired many houses on lease-options, including the home where I now live, and the real estate agent always received a sales commission.

For example, when I bought my home I paid a nonrefundable $10,000 consideration for the option, plus $1,500 per month rent. The sales agent could have received part of her commission from the $10,000, but she elected to wait until I exercised my option when she received her full sales commission.

Incidentally, a few weeks ago real estate broker Mike Bohnen of Sonoma, Calif., told me about the best lease-option I've heard about. He had a luxury home listed for sale at $2 million, but it wasn't selling. Mike had a potential buyer who wanted to delay the purchase. So she offered $100,000 non-refundable option money, plus $10,000 per month rent during the one-year option period. From the $100,000 option money, Mike received a $50,000 commission and he will get the balance of his sales commission when the option is exercised.

Q. DEAR BOB: Our home has been listed for sale almost six months. The realty agent tells us the market for homes is slow in our town. She brought us two purchase offers that we rejected because they both involved our carrying back a second mortgage for the buyer. But I've been thinking about those offers and wonder how risky second mortgages are for home sellers? -- Richard S.

A. DEAR RICHARD: Second mortgages can be safe, sound investments. Or they can be very risky if not properly structured. For your safety, insist the buyer make at least a 10 percent to 15 percent cash down payment. Also ask the realty agent to run a credit and employment check on the buyer. If everything looks good, carrying back a second mortgage can help sell your home quickly and for top dollar.

But if worse comes to worst and your buyer defaults, you should promptly foreclose. At the foreclosure auction your loan will either be paid off by a bidder or you will get the house back to sell for a second profit. Rather than fearing a second mortgage, view it as an investment opportunity.

Q. DEAR BOB: I rent a small cottage and I realize I can't afford to buy a single-family house yet. However, a duplex across the street is for sale. I am thinking of buying it, living in one apartment and renting the other to tenants who would help pay my mortgage. What do you think of this idea? -- Betty W.

A. DEAR BETTY: Although I can't advise on the desirability of a specific property, owning a duplex would be better than continuing to waste money on rent. I hesitate to say a two-family duplex is a great investment, but it can get you started investing in real estate.

The big problem with small residential properties, such as duplexes, triplexes and four plexes, is the resale market is very limited because few people want to buy this type of property. With a limited resale market, small income properties usually don't appreciate as rapidly as do most single-family houses.

Q. DEAR BOB: If we buy a house, how can we be sure we can qualify for a mortgage and how can we be sure the house will appraise for the price we are offering? -- Byron H.

A. DEAR BYRON: Your home purchase offer should contain a finance contingency clause. For example, it might read, "This purchase offer contingent upon buyer and property qualifying for a new fixed-interest rate 30-year first mortgage of at least $100,000 with the interest rate not exceeding 9.5 percent, a loan fee not more than 1.5 percent and a monthly payment not exceeding $840.85."

Q. DEAR BOB: The banks and S&Ls have been bombarding us with offers for home equity loans. Because interest on personal loans is no longer tax deductible, my husband and I are thinking we should have a home equity loan to use for a new car, so our interest will be tax deductible. What are the pros and cons of home equity loans? -- Bernice L.

A. DEAR BERNICE: Most home equity lenders will loan up to 75 percent or 80 percent, and sometimes more, of your home's market value. For example, suppose your home is worth $100,000 and you have an existing $50,000 first mortgage plus a $10,000 existing second mortgage. In this situation you could borrow $25,000 to $30,000 on a home equity loan, but $10,000 would have to be used to pay off your existing second mortgage because most home equity lenders require a second mortgage for security.

Some home equity loans have a fixed interest rate, but most offer adjustable interest rates. Fixed-rate home equity loans are currently around 12 percent and usually require borrowing the maximum amount. But most adjustable-rate home equity loans are credit lines, so your loan does not cost any interest until you borrow money, usually by writing yourself a check on your credit line.

A few home equity credit lines are offered at the prime rate. Shearson American Express is the largest nationwide lender offering this type of home equity loan. Other lenders charge 1 percent or 2 percent higher than the prime rate. But these loans can be dangerous if the prime rate escalates. Because the banks control their prime rate, it usually goes up very quickly, but drops very slowly.

Other indexes used for home equity loans include the cost of funds index and the Treasury Bill indexes. The cost of funds index moves very slowly whereas the Treasury Bill index tends to be much more volatile.

Another home equity loan consideration is the fees you will pay. Some lenders advertise "no fees," but they often sneak in various charges for title insurance and documentation. Before signing up for a home equity loan, be sure to compare the terms from at least two banks and two S&Ls because all home equity loans are not created equal.

Q. DEAR BOB: There seems to be an oversupply of homes for sale in our town. My wife and I are beginning to look for a home because we are expecting a baby in July we are thinking it might be best to limit our search to "for sale by owner" houses, so we can save the sales commission. What do you think of this idea? -- Toland H.

A. DEAR TOLAND: Not much. The marketplace, not real estate agents, determines the value of a home, which is worth the same whether or not an agent is involved in the sale. If you cut yourself off from homes listed for sale by real estate agents, you will be looking at just a small fraction of available homes.

More importantly, you will be denying yourselves the services offered by realty agents such as showing you dozens of homes that meet your needs, helping negotiate the sale, arranging financing, and the 1,001 details that are involved in successfully closing the sale. Most home buyers and sellers are not capable of handling their most important purchase without help from a professional agent. Because the agent's service cost the buyer nothing extra, why not avoid the headaches of buying a home alone?

Q. DEAR BOB: My husband has just been transfered, but we know the job assignment is only for about three years before he retires. Because we want to return to this area, we plan to rent our home to tenants while we are gone. My sister lives nearby and can handle rent collections for us.

My question is how can we set a fair rent for our house? Our mortgage payment is only $278, but I know the house will rent for much more. Is there any rule of thumb for setting the rent? -- Judy R.

A. DEAR JUDY: The old, now-outdated rule used to be a house should rent for 1 percent per month of its market value. For example, using this old rule a $100,000 house would rent for $1,000 per month.

But in most communities it is no longer possible to get such high rents in relation to the home's value. The reason is home market values outpaced rents. Today the best way to determine the fair market rent for your home is to check comparable rentals of similar nearby houses.

Begin with the newspaper classified want ads under "houses for rent." Check out several houses like yours to learn what the owner is actually getting for rent, not what the asking rent is. Another method is to contact local rental agents for their opinion as to what rent your house will command. Incidentally, you may want to list your home for rent with a nearby rental agent who might have a desirable tenant waiting for a house like yours.

Q. DEAR BOB: We are beginning to look at homes for purchase. A friend says it is important to find out why the seller is selling. I have never heard this before. Is it true? -- Kelly T.

A. DEAR KELLY: Yes. Then you can tailor your purchase offer to meet the seller's needs. However, some sellers and their realty agents don't always tell the true reason for the sale. For example, if you were about to lose your home in foreclosure would you want the buyer to know? But it won't hurt to ask why the seller is selling.

Q. DEAR BOB: For six months in 1990 we had our home listed for sale with a real estate agent. The house didn't sell, so we took it off the market. But about three months later we received a phone call from a couple who had seen our house while it was listed. They asked if we still wanted to sell. We said we did. They came over, reinspected the house and we agreed on price and terms.

After the sale closed, the real estate agent somehow learned about the sale. She claims she is owed a sales commission, since she showed the house to the buyers. This is true. But she didn't obtain any purchase offer and we never even learned their names during the listing. How can a real estate agent claim a sales commission after the listing has expired? -- David R.

A. DEAR DAVID: In most states "carry-over" or savings clauses in listing agreements allow the realty agent to earn a sales commission if the home seller and a buyer registered by the agent during the listing term get together after the listing expired to make a sale. These clauses prevent a seller from waiting until a listing expires to save the commission by selling to a buyer produced by the agent.

However, to be entitled to the sales commission the agent must have registered the prospect with the seller during the listing term. If your agent did not give you the prospect's name before the listing expired, the agent is not entitled to a commission. For further details, consult a lawyer.

Q. DEAR BOB: We sold our home to our real estate agent's sister and her husband. The relationship was fully disclosed to us. But an former neighbor told us these buyers never moved into the house, but immediately resold the house to another couple for almost $10,000 more than we got. In other words, the first buyers made a quick $10,000 profit at our expense. Do we have any recourse against either them or our crooked real estate agent? -- Aaron T.

A. DEAR AARON: Consult a lawyer. In many states it is illegal to "double escrow" a property if the real estate agent knew of the two sales. Although the relationship of the first buyers was disclosed to you, it appears they and perhaps the real estate agent earned a secret profit at your expense. You may be entitled to that $10,000 profit.

Readers with questions should write Robert J. Bruss directly at P.O. Box 280038, San Francisco, Calif. 94101.