It works well for buildings that have market values less than 1/2 the Rebuild Cost

It would cost $4k, or more, to demo & rebuild new.  

If the home was ever condemned, would there be any real value in tearing it down and rebuilding on a lot I now own in a nice neighborhood, or is this being overly optimistic about taking a giant bite out of a poop sandwich?

Get contractor estimates for tear-down and rebuild.  

Permit office didnt have a problem giving me a tear down and rebuild permit .I dont want to rebuild the structure , but with the permit , when the property is subdivided , it adds value to that parcel due to an " valid bldg permit"

yes, pretty much we had to basically tear it down and rebuild it apprx $60k was invested

In other words, if you would not rebuild, carry sufficient coverage to offset the "economic" value (including mortgage, etc...), but avoid claim penalties by either carrying enough coverage to offset co-insurance requirements---or engage with an insurer that offers coverage without.

It's basically gutted inside already and I would only consider buying it if I could purchase it for land value (it has 10 acres) + energy (it has massive solar panels) because its probably take 100k to rehab (assuming stucture is fine).I know most people "looking" at it are intending to tear it down and completely rebuilding...

Check if your toilets can use the standard Fluidmaster rebuild kit.

Or would a bulldoze and rebuild be the best bet?