I would definitely agree with not agreeing to do anything without finding out all the implications first. For example, you promise to change the flooring, and then they insist on hardwood, and then you find out costs are higher than expected because of some unknown, etc ... best to know all the specifics and costs before even hinting at your decision.
My suggestion would be to make an appointment to sit down and talk about their concerns. Let them fully expand on the issues, and take notes. Don't promise anything, just be very open to their input and professional.
Then take some time to think about the issues and find out costs. Get estimates and investigate. Get specific advice here with pictures if you wish.
Then make a decision that reflects the big picture including costs of repairs, cost of rental, condition of items they want fixed, what they knew when they decided to rent, personal plans for the property long term, cash flow, legal issues, etc. And then let them know your decision.
None of this needs to take a long time or be a drawn out process. But don't give a quick answer, spend a bunch of money, and set yourself up for future demands. This is a business and should work like one.