The REO agent said that the woman living there was not thinking straight because she told him she was doing renovations and doesn't realize that she is about to no longer be in that house; I told him he wasn't thinking straight  ;) because she was clearly undertaking demolition, not renovations.

You could probably arrange for the property to be moved with consent of the former owner, but bear in mind any undertaking you do towards the property opens you up to liability.

-What else should I think about, and would this be a project worth undertaking, why or why not?

I see it can be an expensive undertaking.

In addition to those you will have redecoration costs and prorations.

That is not an easy undertaking, and IMO will not end well for you.

Actually, in some areas, you may have limited utility capacity for a commercial undertaking.

We were under contract a few weeks ago in coastal NC but that fell through due to termites an various other headaches we aren't prepared to undertake right now.

For example, if it is the owner's or manger's practice to conduct a credit check on all applicants and/or to contact past landlords for references in order to consider such background factors as bill payment history, respect for landlord property, relations with co-tenants, compliance with essential conditions of the tenancy, the owner or manager may undertake those processes when evaluating the prospective Section 8 tenant's application.  

Having that many types of floors and an old kitchen without reducing the price may make people uneasy to undertake a reno project.