If they are paying rent to themselves, it would be included in the rental income approach, and conceivable increase valuation. 

(I am using an FHA 203k loan so I could conceivably address these issues right away).They countered back at $1,050,000.My realtor is telling me that I don't really need to take care of either the foundation work or the termite work, that the building is livable and rentable in it's current condition.And that by not taking care of the work now, it doesn't expose me to any add'l liability if something were to go wrong due to not addressed these disclosed issues.A couple questions: first, is what my realtor is telling me accurate? 

Proving implicit abandonment essentially requires making all conceivable efforts to locate the legal owner. 

By making every conceivable effort to contact heirs, you create evidence of owner abandonment.   

It seems you could conceivably build a brand new home for a relatively low price.3) Playing off of number 2, can you buy anything that would make a good investment with 500k? 

Conceivable, once the rehab is done, the value would be higher and if you're below 70% of the ARV,  you should be able to refinance into a longer term loan.That's about the only way I know of doing it.

So conceivably you have more tax free gain that the last exit. 

I feel I would be more objective looking outside the areas I know, simply because I would have no pre-conceived notions of good vs bad.

Taxes are calculated based on net assessed value times a series of tax rates plus the special assessments in the area and these can vary conceivably from one parcel to the parcel right next door.

“Whatever the mind can conceive and believe, it will achieve!!”