Long answerBest advice I can give you is, immediately, as in right now online, buy and read You Can Negotiate Anything by Herb Cohen!!!!!

All the new information can give you vapor lock.

I said, you mean those vapor trails from jets?

She called on the 1st and said that she broke a window while putting her bed together and needed the window fixed.

Be helpful - its okay to keep trade secrets to yourself like the KFC secret herbs and spices, but help out newbies when you can because everyone was a newbie at one time4.

Also with her being 6 months behind if I do put this under contract do I have to bring it current immediately?

Even with the inspections, there is still a waiting period for using it for something other than a gas station, just because of the unknowns of gas vapors and potential soil contaminants. 

She says the water damaged her bed. 

The tenant pays $700 per month in rent and I haven't increased that in some time due to her being on a single income.

And most garages are not built as living space.It starts with the slab - 1) Different PSI concrete, 2) Wrong steel, 3) No (or wrong) vapor barrier 4) No hold-downs, 5) No shear walls....and it goes on from there.