Buying a failed rehab - good or bad idea?

[Tim Youse]

Still looking for my first deal as I learn the ropes, but have a question.

First a little background - I'm in the Baltimore market looking at 80 year old, 1300 sq/ft, 3/2/1 brick townhouses in an area where ARVs range from $150k - $200k. It seems that rehabbers are purchasing typically around $55k +/- $10k.

So in my search I've come across several homes "below $55k" (the reserve price is $10k) that are going to be auctioned and these houses are ones that someone has already started rehabbing. New HVAC/ducting, drywall, windows, walls removed, etc. I've also noticed that in several of these examples, there seems to be water damage in the basement from leaky walls - lower sections of drywall are removed, puddles, moldy insulation, etc...(this is typical for this area and I know many homes, including mine, have sump pumps and french drains to resolve the issues)

Are situations like these good buying opportunities, or ones to be avoided, and what would cause someone to walk away from a rehab - lack of funds? unexpected costs?