Im assuming that you would want to take advantage of a 1031 exchange on your single family to move into a Multifamily?

Security deposit in exchange for signing the lease.

For example, it MAY make sense for you to sell, then 1031 exchange the funds into a larger property type - or a similar property in a nicer area that has stronger appreciation forecasts.

To confirm, the idea is that the owner would exchange proceeds from the home sale,  for fractional ownership in an REIT institutional grade property with an intermediary (1031 portion).  

While discussing various strategies with another investor friend, I suggested that I’d like to do a 1031 exchange, taking my equity and rolling it into a smaller home to start my BRRRR endeavors.

This exemption is applicable if you've lived in the home for at least two of the five years immediately preceding the sale.For investment properties, a Section 1031 exchange, often called a "like-kind" exchange, allows the deferral of capital gains taxes if the proceeds from the sale are reinvested in a similar property.

Also curious if I can increase the sell price in exchange for them to get a lower interest rate?

Not looking to make a killing just want it to be profitable with appreciation potential.Need to do a 1031 exchange.

Maybe you own the well but have neighbors chip in on the costs in exchange for sharing the well water?

For us, large amounts of equity in a property have driven us to do a 1031 exchange into a larger property and thus increase leverage, cash flow and tax advantages.