@Aaron Bostelle I see this is your first post so welcome to BPWhat you are describing is generally called House Hacking.

You’d have a hard time justifying keeping any of their deposit based on what you described.

Don't get me wrong, I've closed a few of these (in these cases the appraisal report came back only a bit different from what the agent/buyer described), and had a bunch die after the appraisal came back (when the report is VASTLY different from what the agents/buyer said to me, which is the norm), but due to systemic unreliability of information my position is that the price of a definitive yes/no is an FHA appraisal fee.Make sure you're working with a lender that isn't artificially restrictive, get it under contract, and get an appraisal going.

Based upon what you are describing there would be a loan. 

But they do have an attachment to the leases describing how important it is, the fact that landlord insurance does not cover their personal belongings etc.

However, in the scenario you described, it appears there will be a first mortgage in front of you, reducing your security/increasing your risk.As an investor, if you are putting in 50% of the cash required to close, you should expect 50% of the profit on sale. 

Of course if they are willing they can sign a new lease anytime. but is there a problem with me telling the tenants right off the batWell yes, you described some of the potential problems yourself. 

@William Huston, I'll speak to the 1031 :)  What you're describing is a consolidation exchange. 

You haven't described a scenario that would qualify for one of the exceptions, so a "straight no" is the correct response.......Also, you know that FHA loans aren't the only low down payment options out there, right? 

Unfortunately it may be very difficult to find a duplex in this area at your $200k price point - I certainly didn't see anything I would consider livable in the area I've described at that price but then again there's LOTS of properties here.