Re: [Help-glpk] A financial optimization problem

[Reginald Beardsley]

 My question is primarily aimed at seeing if anyone knows of papers on 
something like this.  I couldn't find anything like this w/ google, but it 
seems like a topic someone would have written a paper on.  But I have no idea 
how they would describe it.

I'm currently managing other commercial properties so quite familiar w/ the 
issues that entails.  I really just want to optimize where the money comes 
from. At a small scale I don't think optimizing more helps. Unanticipated 
maintenance will just make the calculations irrelevant.  I *know* I will have 
unanticipated maintenance, I just don't know what, when and how much.

Reg

--- On Thu, 11/15/12, Jeffrey Kantor <address@hidden> wrote:

From: Jeffrey Kantor <address@hidden>
Subject: Re: [Help-glpk] A financial optimization problem
To: "Reginald Beardsley" <address@hidden>
Cc: "glpk" <address@hidden>
Date: Thursday, November 15, 2012, 9:00 AM

I don't have time right now to provide much help, but I do something much like 
this on occasions when making personal financial decisions. It's very useful 
and helps significantly with the bank when explaining why you're doing 
something outside of their general experience. Based on your brief description 
I'd offer a few suggestions:

a. Consider using the present value of net worth as your optimization 
objective. Minimizing tax and debt service implies that your investment 
decision has already been made and its only a question of how to finance. 

b. Develop plausible scenarios.  Looks like you have a nominal scenario in 
mind.  What can go wrong and what would be your recourse?  You don't need a lot 
of scenarios, just a few that representing downside risk such as failure to 
realize the full income.

c. You'll need to model the before and after-tax value of the IRA.  Real estate 
also provides some tax benefits if you can deduct interest payments or shelter 
capital gains. You'll want to provide a common foundation for comparing 
alternatives which circles back to point a above.

d. Include an extra cash flow in the model to maintain future financial 
flexibility.  You'll want to retain some cash flow for the inevitable but 
presently unknown extras that come with these kinds of investments. Whatever 
you think you need consider doubling or tripling it.  Trust me on that one.

Jeff

On Wed, Nov 14, 2012 at 6:02 PM, Reginald Beardsley <address@hidden> wrote:

Can someone point me to information on how to setup the following optimization 
problem?  It seems to me a not unusual problem and there are a lot of smart 
people who follow this list.




I'm interested in buying an income producing property.  I currently have the 
purchase price in an IRA from which I can withdraw money w/o penalty.  However, 
I will have to pay income tax on what I withdraw.



An option would be to borrow money and then withdraw money from the IRA to pay 
off the loan.



Given:



current income

rental income from acquired property

tax rate schedule

withdrawal rate

interest rate

repayment schedule



Minimize:



sum of tax & debt service



Thanks,

Reg



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