Frankly they are a good idea to decrease slipperiness too.

Would this effect the property value by decreasing the income I could have had for this unit or could rehab be considered a years rent for tax and property value purposes? 

Sure, it may not be directly $500 due to tax benefit of interest but cash flow will not decrease by reducing leverage.  

If I did that, it decreases my monthly cash flow to $436. 

This would then decrease the utility cost, hopefully.

https://www.har.com/content/newsroom/Highlights: Single-family home sales rose 5.3 percent year-over-year, with 5,260 units sold;Days on Market (DOM) for single-family homes decreased slightly from 67 days in February 2017 to 65 days this February;Total property sales increased 3.1 percent with 6,375 units sold;Total dollar volume climbed 4.5 percent to $1.7 billion;The single-family home median price rose 1.4 percent to $226,200, which represents a February high;The single-family home average price edged up 0.4 percent to a February high of $281,945;Single-family homes months of inventory shrank year-over-year from a 3.4-months supply to 3.2 months;Townhome/condominium sales fell 5.1 percent, with the average price up 2.0 percent to $210,887 and the median price up 4.6 percent to $170,000;Leases of single-family homes fell 11.5 percent with the average rent up 4.1 percent to $1,720;Volume of townhome/condominium leases dropped 11.5 percent with average rent up 2.2 percent to $1,515.

We still want to find a paying tenant for the sake of our client, but are trying to think creatively of ways we can decrease the time the property sits vacant.

The reason this is an issue for me is that I think I can use suspended losses from other real estate to negate some of the capital gain from the exchange if its divided by 8 and then I could just decrease the basis all together.  

Just wary of how frothy things are now...Everyone is a little nervous but (barring nuclear war, which seems like a decreasing risk) I see no reason for the local music to stop.Is it a silly time to buy? 

Another fear of mine is that he knows there are too many non related people living in the house at one time and the decrease the number of occupants after I have made the deal will drop my ROI and it will have been a poor deal.