Wife and I are late 30s with two little kids and the $5k could fix both bathrooms in the rental we want to sell.

Per the link below, I'm seeing that in a "sleeping space" that the ceilings are permitted to be 7' (or less, for a bathroom):https://www.map-strategies.com...However, the chicago code says the height should be 7' 6":https://chicagocode.org/13-64-....So which is it?

If you open up the schedule and another guest books, then I agree with @Chris Seveney that a credit (assuming the new booking is at a discounted nightly rate) would be more than generous and also lets her know that you are a reasonable host if she does decide to book again in the future.It just feels odd that she would be contacting you the day of check-in to cancel due to the weather, when she could have communicated this days ago.

The next stage would be to install sheetrock on walls and ceiling, waterproof bathroom walls and install tiles, finished flooring, new kitchen cabinets and appliance, install bathroom fixtures.The problem is time. 

I've converted the laundry room into a bathroom and can easily add 2-3 more bedrooms if needed, but not sure I want to go that route.

Eliminate all popcorn ceilings, repaint everything, new flooring throughout, renovate bathrooms, add a bathroom, renovate the kitchen, improve outdoor living, improve curb appeal, and believe it or not, make the garage exceptionally nice.

Eliminate all popcorn ceilings, repaint everything, new flooring throughout, renovate bathrooms, add a bathroom, renovate the kitchen, improve outdoor living, improve curb appeal, and believe it or not, make the garage exceptionally nice.

Maybe a manager would consider discounting to 8%.

The main difference is, as a wholesaler, you'll ONLY be able to work with folks selling their homes at a discount.

He is distressed and will sell at a discount in exchange for speed.