Add Unit or 1031 Exchange?!

[James Lee]

I own a 3-unit property in San Diego on the edge of trendy North Park. It's always rented and has great cash flow and probably around $800,000 in equity. I purchased it as a single family with a VA loan and used the BRRR strategy. We still have the VA loan at about a 2% interest rate. There is space for an additional 1 bed/1 bath unit (possibly a 2 bed). We have access to capital to build the unit, but with the market slowing down, there is a possibility that we could 1031 exchange into an apartment. However we would temporarily lose cash flow. Where should we be focusing our efforts?