That house reminds me of one of those youth projects I was involved in (as a kid) where we'd get hired to do "home restorations" and put an assisted living (eg low income) family in it. Taught me how to lath and plaster, and then wiring, before the project suddenly ended (probably massive OSHA violations going on there!) I still remember one guy cutting 4x8 sheet asbestos for backwalls behind furnaces and stoves, with a wet bandanna wrapped around his moutn and lungs "to keep the dust out". If you could find a team of kid exploiters like that and it were the early 70's, you'd have it made.
The up side is you will get a *lot* of recoverable materials you really won't want to get rid of - when you decide to put a forge in your new shop, you'll be glad you saved all that brick (fire and red) from the chimney and the asbestos sheet from the backsplashes (and maybe the burners from a panelray wall heater)... hardwood flooring (which is probably repairable even tho the sills are shot), old switches (I am looking for pushbutton switches, BTW, as I beef them up and use them for my shop), etc... I would get a shed from Lowes to store recovered materials in (or maybe even a seatrain/flexivan/container)... but that's me.
The downside? You are going to be so burned out and pissed off in a couple years as you nickle-and-dime this place apart, having that hulk next door to your really pretty house (and drawing ire from both the neighbors and your town alderman for creating an eyesore and a nuisance), then realize you still have a huge mess to clean up, and a basement hole to fill (or not - I'm thinking service pit for your service bay), and *then* building the new shop/garage/MiL/studio rental complex there... Add to this the unthinkable - the house is 1/2 way down, some kid goes "exploring" and gets hurt or killed - on your property... no thank you.
OK. What I would do is take down the masonry work (top down), recover the formerly common but now "hazardous" materials (asbestos, etc.), and cool antique fixtures (washroom sink and 4" Cast Iron plumbing? For a shop? Stellar!) for future use. Then call the demo guys in, and in a weekend it's gone and done and ready for your NEW shop.
Yeah, you're looking at 5-10 grand... but that's an extra year and a half you'll get to build (and use) your shop, rather than looking at the snowy, deteriorating hazard of a house next door.