How do you overcome inflated purchase prices?

[Joseph Cornwell]

My fellow BP'ers,

I am running into a reoccurring issue lately. For a little background, I am located in the Cincinnati, Ohio market. I am looking for a 2+ multifamily property, the amount of units does not really matter to me, as long as the numbers work and it is in my target area (C to C+ area). I have now sourced 5 off market properties from different owners and have ran into the same issue. On 2-4 unit properties, they want a purchase price that typically results in zero to negative cash flow, and typically the comps in my area are showing a value above where anything makes sense at market rents, based on what sellers expect to sell for. I understand the sellers position somewhat on these 2-4 unit properties, because if others have overpaid and set the market values above what makes sense to buy at, they are hoping for another seller to come along to make the same mistake on their property, and they have the comps to support their position. 

However, I am running into the exact same issue on commercial properties, 5+ units. The past two deals I have worked on, the owners set an arbitrary asking price. I run all the numbers, income-minus expenses divided by cap rate = current market value right? Often times the actual valuation is 25-40% lower than their asking price. If someone paid their asking price with standard financing they would be losing money. When you demonstrate why your offer price is what it is, they get offended and say they would never sell for anywhere close to that price. Of course, my valuation is based purely on the financials they are providing. Even when I factor in value add opportunities by renovating units, raising rents, reducing expenses, it still would not make any sense at their asking price. 

Is this something everyone is dealing with? Am I approaching these sellers in the wrong manner? Has everyone just lost their mind and we will not be able to buy anything until the market crashes? I am honestly just trying to put myself in their position, and if I understood how real estate math works, and I knew anyone buying at this price would lose money every month, how could I possibly think I would sell the property at this price? Additionally, this particular sub market has very little to no appreciation, so it is not like someone can buy these at zero or negative cash flow and make 10% in appreciation every year. 

I would love to hear any suggestions, or from others who have dealt with the same situation.