Almost went bankrupt building my first house. sharing the lessons learnt
I’m in a philosophical and reflective mood.
I’ve recently concluded a 3+ year legal battle against my builder (2 x house builds) and the VIC building insurer. And whilst I’m pleased with a $350k payout, I must say I’m absolutely horrified for the average person or family should they find themselves in a similar situation. With a bit of luck, a high income job, no lifestyle expenses or kids etc, I only just managed to not go under/bankrupt. And so I thought I’d share with you guys my experience in building my first house in my 20's.
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For background, I work in finance, make good money, and I am educated. I started building 2 x houses in 2016 and part way through construction the builder ran out of money, didn’t renew his builders license (building illegally at this point), let his site insurance lapse (in breach of contract), generally just lied about everything, and essentially committed fraud. I ended up engaging lawyers because the relationship with builder wasn’t salvageable, and I ultimately terminated the construction contract with the builder and subsequently attempted to make an insurance claim in 2017 (insurance in VIC is mandatory for construction jobs $16k+, to enable an home owner to claim should a builder die/bankrupt/insolvent). Insurance denied my claim and I was left holding the bag for 2 x incomplete houses, and hemorrhaging cash on $1m debt from original mortgage + the construction debt. Vic Building Authority (VBA) and every other government agency could not have cared less, provided no assistance to me or the situation, even though the builder warranty insurance is actually via the VIC government.
Things got really bad once I terminated the contact, I had sub contractors making death threats to me and breaking in to the properties because they hadn’t been paid by the builder and they wanted me to pay them. I even had to sleep on the floor of the houses with no water/electricity/toilet. I had to take these measures because the properties were uninsured for a period of time because nobody wanted to insure incomplete houses. However I did eventually find an Insurer after a few weeks of research, and I could eventually return back to sleeping in a proper bed.
Soon after i ended up engaging another builder to complete the houses, and I had to cash fund all the cost over runs… because it always costs more to get a 2nd builder to take on the risk of a partly build property. It cost me $100k+ in legals, building inspectors and additional construction costs in order to complete. And I had to cash fund all of this whilst servicing a $1m+ loan. Brutal!
I did eventually finish the construction of the houses with the 2nd builder, some 18 months behind original schedule and after spending an additional $100k+. And so, with good legal advice, I then went to work taking the original builder to VCAT, and won a multi 6 figure judgement against the builder. The builder obviously didn’t pay and thus defaulted, which then represented a trigger for the building warranty insurance policy. And so again, with good legal advice, i made an insurance claim in 2019. And after a year of stuffing around with lawyers, VCAT submissions against the insurer, and time wasting by the insurer, I obtained a $350k payout in late 2020. Some 3 years after my first attempt at a insurance claim!
The unfortunate reality is that with 2 x uninsured properties and a dodgy builder, I was ultimately exposed to potential personal bankruptcy. Fortunately I’m young, high income job, no kids/expenses, so I just managed to crawl my way out with alot of stress and pure grit. But I’m absolutely terrified that if I was the average Joe or family, there would have been no chance to find a lazy $100k laying around in a bank account, nor the ability to service a mortgage + rent + lawyers etc. Families would be destroyed in such circumstances.
This sort of stuff just shouldn’t happen. And so I share the above story, and my lessons below, with you all.
Lessons learnt:
- There are dodgy and shonky people in every industry, including construction. Watch out! And do your due diligence on the builder.
- Don’t let yourself get bullied by builders and sub contractors. I’m young and 6 foot 2 inches and 90kg and used to fight at amateur level, and I even felt exposed when confronted with death threats and break ins and sub contractors demanding money. FYI — police didn’t care about the death threats.
- the residential construction industry, for the average Joe/family building a house, is disgraceful and full of risk. There are more protections in place for a $20 toaster than for building your biggest financial asset, a house. If I didn’t have a bunch of cash I would have had to wait 3+ years for the successful insurance claim to then have been able to start completing the houses. How is that even remotely fair?
- Make sure you have a 20% contingency allowance when building a house. If it goes bad you’ll be up for minimum $30k in legals, $10k in inspections/reports, and $10’s of thousands in cost over runs to complete with a new builder.
- building warranty insurance is a joke and won’t save you unless you have lots of $$$ to fight for it. Don’t rely upon it. It took me 3 years and lawyers to make a successful claim. The insurer even engaged their own external legal counsel to represent them and fight me.
- once you sign a construction contract, you hand over control of the site to the builder. If the builder doesn’t have insurance, and let’s say there is a fire, you only have recourse via sueing the builder. Most builders have $0 in their companies. Make sure the builder has site insurance (this is separate to Building warranty insurance).
- insurance in VIC caps out at $300k per property. And also has a 20% payout cap on cost over runs. Eg. If your original build is $500k and builder goes belly up, you can only claim $100k in additional costs to complete the house. You can separately make a claim for any defects in addition to this (with an overall hard cap of $300k for the policy).
- when your back is against the wall. Fight hard for what is right and what you deserve. I’m horrified with my insurance claim experience. Most people would give up vs fighting for 3 years and spending 10’s of thousands in legal fees.
- learn from your experiences in life, including the bad ones, and get back on the horse all the more wiser and with your eyes open.
- have sympathy for people. I know sub contractors who worked on the job who lost tens of thousands of dollars due to the builder going belly up, some of their businesses failed and marriages broke down. I feel horrible for these guys and their losses.
- be humble and share your experiences and learnings with others
Peace! And hope everyone stays safe
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