Then you could sell and do a 1031 exchange the other 2/3rds (or however the allocations worked) and purchase a vacation rental condo down south that you use some for vacation and generate some rent as well.  

Whenever a licensee offers to purchase a property as a condition to obtaining a new or extending an existing brokerage engagement, he or she must write a contract expressing all the terms and conditions of the purchase prior to or at the time of entering into or extending the brokerage engagement.Whenever a licensee offers to purchase a property in order to enable a party to purchase, sell, lease, or exchange another property, he or she must write a contract expressing all the terms and conditions of the purchase prior to or at the time of the other party’s entering into a contract for the new property.

I had a small office that needed to be rented and a local realtor listed it in exchange for one month's rent.

I would also let them know you will cancel the lease to save them from being subjected to whatever is really bothering them.Only concern is they might hit you with some medical bills saying one of them has a lung infection, feeling eye irritation, coughing, shortness of breath, and asthma symptoms and holding you responsible, hoping you will write a fat check in exchange for some sort of hold harmless papers.

Are you allowed to do a 1031 exchange from a flip to a rental?

I am considering 1031 exchanging a townhome I own in Southern Cailfornia for a condo in Maui which would be rented out as a vrbo. 

Next hire a pro to clean the heat exchanger and make sure your draft is good in the chimney. the only thing I would recommend Changing system wise is if you have a hot water coil in the boiler.

Once they saw it the idea came up of them living there and doing the cosmetic work in exchange for paying less rent.

Actually I just spoke with my CPA and a 1031 exchanger today about doing just that.  

This could potentially give you some PM advantages.As far as your important 1031 exchange questions, I have a resource for you that I will DM you.Congrats again on getting yourself into such a strong investing position!