Should I Carpet a room or not?

[Nicholas Standford]

I recently purchased my first rental property, a 2 unit townhouse. I'll be living in one half and I am taking on a previous tenant (a couple and their son) who have been living in the unit for 8 years. They were loyal tenants to the previous owner primarily because of an arms length connection they had with each other which in turn resulted in below fair market value rent. My intention is to incrementally raise their rent over the coming months while I begin improving their unit with much needed functional upgrades and the tenants have already voiced their desire to have the upstairs carpet replaced. Underneath the carpet is hardwood, which clearly needed to be refinished at one point, but was simply covered up by the current carpet instead. 

So, should I simply replace the carpet and make the tenants happy or would it be financially smarter to rip out the carpet and refinish the hardwood?