The other benefit is the customization aspect - why try to find a home that matches what you want exactly when you can just create it, and many times for less than you can buy it for on the open market.
When you do a FHA 203k loan, a licensed contractor does the work - its not self help although you can do some things that do not require a license and reimburse yourself for expenses only, not labor. Check out the site http://www.makeoveragent.com to get some more information on the 203k and to see some before and after pictures of my clients homes.
However, if you intend to live in this home, there are endless other considerations others have listed below. Your ability, resources, patience, time, and of course inconvenience. Only you can place a value on the stresses these will bring into your life and the subsequent consequences.
A more expensive home could be in your best interest if you have not completed any home remodeling prior to this and If you have a job and family that takes up the majority of your time. The last thing you might want to do at the end of the day or on the weekend is to come home and have to start work all over again.
A cheaper house that you can customize completely also has it's advantages. You might have already worked with contractors that you trust and obviously you get to completely customize your new home.
You might want to sit down and pencil out some of your needs and wants. If you can find a house that has most of these you would then have to weigh your options (meaning $$$) against the houses you find that need to be remodeled.
There are benefits and downsides to purchasing either way. It all depends on your capabilities.