If you are serious about this type of project I suggest you spend about �20 on this book.
http://www.amazon.co.uk/Housebuilders-Bible-In siders-Construction-Jungle/dp/0952485249
It is not a technical book but contains a massive amount of information helpful to self-builders on costing their projects.
The answer to the simple part of your question is that it is invariably cheaper to knock down and rebuild. It costs an incredibly small amount to demolish and clear a site - the order of a few thousand pounds. Then you can start afresh, putting prpoer foundations in, constructed walls to current insulation standards and so on.
If you renovate and refurbish you are constantly having to account for the deficiencies in what exists and make allowances for them.