I am trying to get some feedback from anyone who has had experience with the Baltimore Tax Sale process whether good, bad, and ugly. 

You can factor 10% for repairs and CapEx which helps your cash flow.Then Option 1 doesn't sound so bad having all of your money back and $150/month.

It's likely to cost you much more than a standard eviction and will "reward" the tenant for their bad behavior.This is an example of how hiring an amateur can be far, far more expensive than hiring a professional.

In your experiences, does that generally mean it's a bad location or that there is good potential?

I don't think your exposure is that bad on interest rates, because you would likely be refinancing at the 6 month mark.Your biggest risk imo is did you get the rental income you expected, and did the property appraise for what you thought it would after you financed it. 

The pest control guy said the infestation is very bad and looks like it's been going on for a while. 

Now is the time to begin insulating yourself against bad times and down turns. 

If you are looking to scale quickly - even tho this is your first deal - having 80% in the deal is never a bad thing - have your guidelines but sometimes you can’t always get it exactly where you want.

Bad condition, moldering walls, built in 1860.

I carry just enough insurance to get the bank out of the way if something really bad happens.