What would YOU do?

My partners have been sending out letters to owners of multifamily buildings we’d like to own. Response, as you can imagine, has been light, but we have heard from at least two owners who have interesting properties to sell. Note that both are over age 70 and looking to retire. They have self-managed and maintained their properties. Records seems sparse and non-computerized. We know the location, the unit mix, and the rent ranges ($800-$900, $1100-$1200, etc.), and he claims that, because of the location, “it always stays full.” But we have nothing else to go on as far as the property’s actual historical performance.

He wants an offer. I want to give him an LOI this week before he calls someone else or a broker. In the past, I've only purchased through brokers, who provided their own pro-forma APODs and applied a too-low cap rate to derive a too-high purchase price. I'd fiddle with the numbers a bit to make sure they were realistic for my plans, then make an offer based on those numbers and the cap rate I was willing to pay. Sometimes, I'd include my APOD to show how I arrived at the number.

But what about when you don’t have even an estimate of the expenses? Seems a little early in the process to be asking for bank statements and tax records, although those will be required in the due-diligence period. If he will even provide real financials to a stranger, it might take quite some time for him to collect them; we could risk losing out to a competing buyer/broker.

How would you proceed to a.) Value the property, and b.) Make him a reasonable offer?

• Would you spend the time to call him, try to arrange a personal meeting, and try to get to know him? Perhaps trying to build up trust so he will provide the financials now?
• Would you just get him an offer ASAP, based only on Gross Rent Multiplier?
• Would you base your offer on the property’s square footage and the average value per square foot in the area? (If we can find that number for 25-year-old multifamily properties.)
• Would you create your own pro-forma APOD using his claimed average rents and your knowledge of market-average expense rates, then apply a cap rate? In other words, do it all with TOTALLY made-up expenses?
• Would you show him the pro-forma APOD you made up? If so, would you put in some language in the LOI explaining that we didn't have his numbers, so the purchase price is "subject to" his producing financials that closely support our estimated ones?
• Would you even bring up cap rates with an 82-year-old owner, who has no broker to ask what it means?
• Would you just “low ball” him an offer, knowing that might upset him and either have him so ticked off, he walks, or maybe he angrily counters with some astronomical number?
• Or would you "high ball" him now with a low cap rate (high purchase price) just to get him excited about selling, stop him from calling the competition or a broker, and get an offer in his hand… knowing he will counter with an even higher price? Then, once we have a signed deal at some ridiculous price, and we get the actual financials (probably limited to leases, bank statements and LLC tax returns, in this case), come back and try to "retrade" the price (ask for lower)?
• Would you just send him a simple LOI with your maximum purchase price and claim it is your "take it or leave it" offer?
• Would you include multiple scenarios in the LOI: One for cash-only, one for total seller-finance with a reasonable down, and one for a partial seller-finance?

Would love to hear from some other BP’ers who have been in this situation of dealing directly with commercial property owners who’ve indicated a willingness to sell, but can’t/won’t provide enough detail for the buyer to make a truly informed decision. 

Thanks in advance to all respondents! Your input is what makes BP great.