It would take a long time to list everything we did to the house, but it was essentially a total gut and rebuild adding a full master bath and closet.  

The owner has been  trying to rebuild a new property from scratch for, I recall, about 2 years. 

We had a contractor submit an estimate to rip it out and brace/rebuild it. $2500.

There is a ton of it going on and builders are buying old ranch homes for $250k, demoing them, rebuilding new, larger (3,500sf)  more open floor plans homes and selling them for $850k-$900k.  

I was just wondering if anyone thought it would be a sound decision to tear down and rebuild a new multi family on the land. 

There is almost always a way.I've realized also that once you build a nice cash flow 'machine' it becomes easier and easier to buy more properties as you gain equity quick and rebuild your cash stores from rents to buy again.

In some cases if the building burns down you can't rebuild a duplex, you'd have to comply with the current zoning.

As everyone else has mentioned, you should start rebuilding your credit history ASAP.

Needless to say, it took us two months to get renters (these renters have stayed they wish to purchase the house in the future, but they want to put both the husband and wife on the loan and need to rebuild the wife’s credit) and all the houses in the subdivision that had been sitting sold.

I am asking because we are sitting on at least two properties where I think the long term play is to tear them down and rebuild.