What is a good equity goal to shoot for?

[Christina Torres]

Husband and I have been working primarily in the SFH market in Chicago and are going to go into the commercial market. We're trying to set a goal for 2019 but could use some help! We're looking at a 2-unit with a storefront, what would be a good number to increase the value by that we should start with? We were thinking 60k at a minimum in order for it to be worth the effort, thoughts? We know there's no right or wrong as long as the numbers work but what's a good place to start for our first? Thank you in advanced!

[Erik W.]

This question is sort of like the one that gets posted here every week "How much cash flow should I get?"  True, it's equity, but the same thought-process applies, and I supposed a good way to start is the same way you analyse your cash flow targets...."What is/are your goal(s)?"  

Compare your options in terms of opportunity cost.  Why cap it at $60K on the low end?  Would you be happy enough if you made $50K?  Would doing that deal prevent you from hitting other targets?  If $60K is your low, what's your high?  And what do you plan to do with that equity since you can't eat it or spend it?  Are you going to sell and reinvest (i.e. trade up), borrow against it, let it sit on your books so you can feel satisfied that you have a fat balance sheet?

If you set up your minimum at $60K and other deals slip by because they aren't quite as good as your minimum, what else will you be doing in the meantime that will generate better value?  Let's say it takes 250 hours to do whatever deal you do, if you make $50K, that's $200/hour.  Pretty good wages, compared to some professions.  Would you pass that up because it's not $240/hour (same deal, but $60K)?  Your difference is only $40/hour.  What will you do with the time while you wait to more than recapture the lost value from not doing the $50K deal?

Happy thinking!