Ask Paul: My builder is insolvent and my house isn't finished

Dear Paul,

I find myself in a challenging situation after a builder insolvency. I received $150,000 from the building indemnity insurance, which is in my bank account earning 4.5%.

The home is at the frame stage, but an additional $250,000 (the $150,000 building indemnity plus $100,000 out of pocket) is needed to complete it. 

I am hesitant to add the extra to my mortgage due to a new car loan and increased interest rates on my mortgage.

I'm contemplating whether to invest the $150,000 in shares for a few years or pay off the car loan and explore refinancing. The initial build price was $270,000 and the new price is $520,000, so the bank might be cautious due to the property's current value. 

I'm renting and paying half my mortgage payments to cover principal and interest at the moment. - Bec

Hang on, Bec. I know this must have been a stressful time and my thoughts are with you.

But what has to be a terrible idea is leaving a home sitting at frame stage. I know nothing about building, but I can't see how leaving a home at this stage can lead to a good outcome.

Time and the weather are going to be most unkind to your property. Equally, building costs go up each year.

Can we just drop this 'invest in shares' idea? I love my share investments; they are undoubtedly my favourites. Sure, at times they fall, but over time they go up nicely. They send me beautiful franked dividends, which also tend to increase over time.

But they are an awful short-term investment. I have no idea in a few years whether you could make 30% or more, or lose 30% or more. Time is the safety net with shares. I'd recommend a holding period of at least seven years.

What is more predictable is the short-term rise in building costs. You can only do what your budget says you can do, but is there any way the $150,000 would get the property to lock-up stage?

You are paying your mortgage and rent.

If you could plan for your home to be complete in a year or so, does not having to pay rent assist in covering repayments on the extra $100,000 you need?

In your shoes, I'd be busting my butt to get this property built. Clearly, all I know about your situation is what you've told me.

This decision needs a deep dive into your income, spending, job and a lot more. My views can only be general, so seek advice if that helps you to pull a plan together.

But I just can't see how paying a mortgage on a home at frame stage and paying rent while contemplating investing your building indemnity insurance cash is a great idea.

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