Hey Steve! Good to hear from ya. Not too small, cause odds are, if your going to build and maintain any IH built cub cadet, odds are you come across this site.
Building a cub is a great idea for ease of working and parts availability.
As for your engine combo, it depends on your purpose. If your going to pull with Panther Pulling only, a 12hp will limit you alot. Because anything over 8hp will push you into the 16hp classes. Then your underpowered before you even start building.
If you plan to run over clubs like Montgomery Co pullers. A 12hp block is all they allow for the typical Stock altered class. (Bob painter has a 12hp in his 108, but good luck getting any info from him. And even some of the big 16hps can't out torque him. And he's rev limited to 3980rpm!!)
Anyways, a 106 is a narrow frame and you can't easily fit a 16 in it. So if you want a big 16, your better off starting with a wide frame like a 108 or 128... Or any of the gear drive quiet line series like the 1200 Tyler uses.
Do it's up to you.... It's worth mentioning that the Pulling forum on this site is very slow moving. While the main forum rolls over almost everyday. This IS the #1 cub site period. So use the search button to look for anything you really need. And the sponsors above have ANYTHING you needs to fix a cub. Except the custom puller stuff that Midwest Supercub or Vogel has.