He recently messaged us and stated "I talked to a friend of mine that runs a general contracting company and he said I should ask you guys if you would be ok to sign a notarized waiver of responsibility for any injuries that occur on the jobsite.

If a distribution or dissolution occurs shortly prior to the exchange (or shortly after the exchange), the key issue is whether the Relinquished Property (or Replacement Property) was “held for productive use in a trade or business or for investment purposes.”

The decrease in cash flow would only occur if we had to use it as a long term rental as a back up plan - but I keep telling myself that would only be for the short term as the area is much more desirable.  

I don't know about you, but I'm not going to chase someone down legally for $100-$300 in damages which is probably the average cost when a problem occurs.

If/when a correction occurs and you find a deal, then buy that one too. 

I'm a big fan of buying in strong job growth markets (like Austin), where rents and appreciation are more likely to occur.

For reference, I was on the selling side and this same situation occurred with a prospective buyer.

Is this normally what occurs for folks without a lot of upfront capital, or are there other ways to go about it that don't entail relying on your equity?  

First off I would find an investment friendly realtor in your market, or whichever market you choose, and do a deep dive so you can get a great idea of where the growth is occurring and focus your attention and cash on those areas.

In fact, quite the opposite may occur.