Bond structuring when you're buying 20% below market

You've negotiated a property at 20 percent below its bank valuation. Congratulations — and welcome to the frustrating discovery that South African banks will finance you against the purchase price, not the valuation. The equity you thought you were buying is locked up on day one.

Three approaches work. First, buy in a trust or company with a private lender who will finance against valuation, refinance to a bank bond after six to twelve months once the property has 'seasoned', and release the equity then.

Second, apply for the bond with the higher-of-purchase-price-and-valuation clause explicitly negotiated at pre-approval stage. FNB and Investec have historically been the most flexible on this; Standard Bank and Nedbank almost never are.

Third — the cleanest, and the option most seasoned investors default to — accept that the discount is realised on exit, not on purchase, and simply size your deposit against the purchase price. This is boring but avoids the refinance risk and the private-lender interest rates that often eat the discount you fought so hard to negotiate.