I've seen this done where there may be *one* old falling to pieces home in
a nice area and you are basically paying the price for the lot. (Makes
financial sense.)

Or where two or three homes are demolished for an apartment complex or
higher density housing. (Makes financial sense.)

Then there is the "I want that location, but I don't want that house and I
have plenty of money to spend" decision. I have seen this done in upscale
areas. They will come in and demolish a perfectly good condition home with
nice landscaping, then tear out all the landscaping. Then build a custom
home and bring in new already grown landscaping. Were talking 75 ft. high
trees brought in on a semi. After they are done, it looks like the home has
been there for 30 years!

Before doing this, be sure to check out the local zoning, set-backs, etc.
You may not be able to build a new home as close to the property line or
whatever. Things may have changed from when the home was first built. Also
check with utilities to be sure you will be able to get what you will need.
Water, electricity, phone (can you get DSL?), natural gas, cable TV, etc.
In some situations it might be a problem getting a 200 amp electric service
or perhaps enough water pressure to water a big lawn. Best to check out
everything before buying. Is the old house on septic? Will you need to
connect to city sewer? Does a sewer run in the street or will you need an
easement? Will you have to pay $40,000 for the city to run a sewer to the
front of your home, etc.