Owner's valuation of his facility is double what it's actually worth

Had a long conversation with an owner today who is open to selling his 36,000 sq foot facility. It's 2 locations that are across the street from each other. The biggest challenge is his asking price.

He has a number in mind at $4.9M and based on the Gross Potential Rental Income (he doesn't have an ACTUAL gross income, more on that later) that he shared with me of $19,200 at one location and GPRI of $11,200 at the second location.

Quick Math

19,200 + 11,500 = $30,700 total monthly GPRI

30,700 X 12 = $368,400 total annual GPRI

368,400 X .65 = $239,460 assuming 35% expenses

239,460 X .9 = $215,514 assuming 90% physical occupancy

$215,514 would be a rough estimate of his current NOI based on 35% expenses and 90% occupancy

$215,514 / .08 = roughly $2.7M value at 8 cap

$215,514 X 10 = roughly $2.2M value at 10 cap

He doesn't have ACTUAL gross income numbers because he said 70% of his tenants pay with cash or checks and he only reports about 1/3 of his total income for taxes. So he doesn't actually know how much he's making. This clearly has clouded his valuation of his business and will create a challenge to help him understand the business's value.

So on my next call with him I'll ask how he got to that $4.9M number to better understand what he's thinking, but his asking price and my estimates are so far off that I don't know how to even present him with a ballpark number without insulting him and damaging our rapport? ....unless it's just worth having a conversation to let him know a ballpark of where I'd likely be on it ($2.2 - 2.7M), and if he doesn't like that price then I won't think about it too much, and I'll just move on to the next one.

How does he come down to earth to better understand what someone can pay for his business?

It's a great looking facility with a lot of those great things we look for in a mom and pop facility... can't rent online, hasn't raised tenant's rates because he knows so many of them, some tenants have been there for 20 years, he'd rather keep the place full and have less turnover, has owned them since 2005 and 2009, has no debt on it, most customers pay with cash and checks...

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