The SEO world tends to treats penalized sites like they have the bubonic plague and stay as far away as possible. With so many sites impacted with panda, penguin and other penalties there are some good opportunities.
Some webmasters are accepting the fact that they exploited short term loopholes and are now not smart enough to build a long term sustaining website business. That is not a bad thing. It is a good thing to be honest about your limitations and to recognize when you should close up and recover whatever you can with what is left of your short term empire.
Here are some reasons why I consider buying websites that seem to be past their glory days...
If a site had lazy penalty prone link building scheme, you might want to buy it just to republish the quality content it had on your site.
If a site has quality backlinks but horrible content, then you might want to buy it just to redirect the links to your site.
If a site has basic technical issues that the webmaster who owns doesn't even realize or knows how to fix, you might want to buy it just to fix its technical errors and resurrect it or interlink it with your quality site.
On the other hand...
If a penalized website is mostly supported by paid links you probably don't want to buy it since the links will likely disappear once you ownership is transferred.
If a website was really offensive and earned a manual penalty you might want to avoid it, because sometimes Google does not forgive or forget.
If you can't figure out why the site is penalized, you should be honest with yourself and avoid getting in over your head. Admitting to yourself that you don't know everything is ok and will probably save you alot of money.
If you already have bought 1000 other websites and have them all hosted on the same ip and interlinked, you might want to stop and reconsider your long term strategy.
What words of wisdom do you have when it comes to dealing with penalized sites?