If you don't, what are the odds you do it improperly and therefore lose any protection you thought they had. 

You can still lose your investment in the LLC.

Many lose Vouchers because they cannot find a place.

Seller might not want to do so, but Seller's agent may require it or risk losing their license and exposing the broker.

Putting 20% down really puts a dent on our liquid money but better (we think) than it just losing value in the bank. 

Even if you are losing $500 per month which is ideally less than you'd pay in rent AND you get the other benefits of owning real estate like appreciation, value add equity, and the tax benefits.  

I mean just look at those that get all nervous with EM deposits even though they are not going to lose the money ..

Would it make more sense to live in old side and work on it while living there and still make rent on other side while losing out on being able to claim expenses as tax deductible or live in updated side and loose out on rent for about 4-6month(1300/month) but be able to claim all expenses as tax deductible.

Tax sales are a balancing act among (1) the need of government to collect property taxes and, if owners will not pay then, then to provide incentives for investors to purchase the tax rights and (2) investors, who need an attractive return for the risk they are taking, and (3) citizen taxpayers, who should not lose their property and all equity because of small debts and perhaps temporary or at least relatively short term financial difficulties.

If your monthly budget for this type of thing is $100, you're losing money.