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Due to moisture my outside wall is rotten in a small section of house. Picture attached. What is the best way to fix this.enter image description here

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Consider extending that downspout to dump rainwater farther away (and downhill if possible). –  Steve Fallows Mar 31 at 3:11
    
Thanks Steve, That might be the reason why it rot at the first place :( –  David Apr 1 at 3:29
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I see that you have posted two questions about this situation. I fear you have to address a couple of problems here. First and foremost is to try to route water away from this area. We can address this in another segment with more info on the area in question.

As far as the immediate problem, I am pretty sure you will have to remove the damaged sections of the rotted siding. I also suspect there will be damage to the bottom plate and will have to be replaced as well. Also inspect any insulation in this wall for moisture damage and mold. I would be looking at replacing the sill plate with pressure treated lumber and seal it with caulk under the plate to avoid any water creeping indoors under the plate. If you do not want to replace the entire height of the siding, you may be able to scab a matching replacement patch in there, but that could be unattractive. You could install a horizontal trim piece along the bottom, under cut or flashed to the siding if the rotted section is not too high up the wall. The important thing here is to remove the rot and create a side wall that will not rot again. You could use a PVC trim board (1X8 etc) or other rot resistant material. This is one of those jobs that require a look-see and adapt a solution as the amount of damage is determined. If you are looking for step by step directions for cutting, removing, and replacing, that is a whole other discussion, depending on your level of expertise and tools you have available.

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Thanks for the input, sidewall should prevent further rot on the siding above ground but, Even if i install the sidewall, will the existing contact of concrete with the sill is not a problematic thing? –  David Mar 30 at 16:31
    
You will have to inspect it when you take off some of the siding.. If it's rotted, you will need to jack the wall 1/4 inch and replace the sill with a PT sill. Don't put new stuff on a rotted sill. –  shirlock homes Mar 30 at 16:36
    
Without actually seeing the extent of damage under the siding, it is very difficult to plan a course of action. –  shirlock homes Mar 30 at 16:39
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Shirlock's advice is good but I want to add a few things:

  1. You need to regrade plus move spout out.
  2. However I think you have more than a standing water problem. The water damage is pretty high up and it is pointing me to thinking that your gutters are not functioning . I think your flashing may not be tucked over the gutters or something else. We don't have pictures of that though.
  3. The bottom foot or two - or possibly the entire side - I would use a water resistant material not wood for siding. Wood looks good as siding but need to be protected more which it doesn't look like this side of your house is.
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I've had this same problem before and found it difficult to find replacement material that matches. In Texas it rains heavy and the high humidity keeps these surfaces wet. If the rot is low enough to the floor, run a chalk line across horizontally. Cut of the rot with a circular saw,(adjust the depth of the blade so it doesn't cut the 2x4 wall behind) then use a piece of hardi cement trim board to fill in the bottom. Caulk well between the old wall and the trim. Ted

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