I am a little skeptical. The land it sits on sounds as though it is destined to have future issues. Be sure, like the Primary song "The Wise Man", to build your house upon a "rock" or a firm foundation. It sounds like a "sandy" one to me (metaphorically). Before spending HEAPS on getting it all redone, I'd be very very cautious. If it has been flooded out once, is it likely to do it again? Get someone who is an expert to come inspect it.
Good luck! My experience with houses in the past has been that what looks do-able will probably take double what you thought it would. Just be careful. It may be worth it but I'd be very careful. There are LOTS of houses on the market for less than $200K that don't have any problems. :)