If they can’t make a profit, they are still on the hook to pay the rent.

He thinks they can rent each room out for $800 for a total of $3200/monthHe has offered 10% for me to manage the renting of the rooms to the tenants and to take care of the lawn and snow.This initially sounds low to me. 

Specifically, I recommend purchasing a single family house with as little money down as possible, and converting the property to a rent-by-the-room investment.

The barrier is the additional complexity - now you are operating two sets of books, and filing two tax returns, and have more operating agreements, more state registrations, etc, need to manage cash better, need to keep in constant mind that your rents need to be a supportable FMV, which may require getting third party certification on your rents so that in the event of an IRS audit, what you have done is supported.In short...the size of the project, and the taxable income, need to be of enough scope to make all the additional costs and annoyances worth it. 

I have a weird situation going on.Tenant has been here 2 years, current on rent but a total mess.

. $40,000 including closing cost) under my wife and my name since we will be living in 1 unit and rent the other unit out.

We’re planning to rent our home when we move—but we know we will be moving out of state. 

With 3 bed renting for 1800-2000/month and 2 beds renting for 1400-1600/month this is going to be a cashflow monster bringing in over 5000/month!

Depending on the demographics of the area, I've found that Home Depot/Lowes is fine for just about anything going in a regular rental.One must consider return on investment and buying fancy custom cabinets won't yield much if any more rent that box store shaker cabinets, especially in a duplex.Get some decent cabinets and a good countertop and you should be good to go.

Their projections about future rents and values make pretty graphs but they are simply guesses.