"If it weren't for bad luck........"
You may be correct about the owner paying off the mortgage but this depends on the balance of the loan, the extent f the damage, and the amount of the insurance check.
Whether or not this is a good inventment also depends on the price at which it is obtainable, the cost to restore the home and your desire for this property. There are times when the "true value" of something exceeds the actual value. This can be because of location, view, historical importance, etc.
Our recommendation is to consider your options carefully, making sure the home in its present condition isn't a "money pit."
Best of luck,