You may find there's an opportunity in purchasing a property with good bones at a heavily discounted price, then renovating it driving up its value. 

Fine by me, I'll buy their properties back from them at a 40% discount next cycle. 

Depending on your market, I might discount anything older than that.

If you are getting the family discount this would likely cash flow well.

I fear this whole venture was a tremendous mistake.

I would say now because you can not control the weather and it is a short notice cancellation.I would offer a discount on a future stay to try and keep from getting a bad review.

How many discount points did they pay?

There is a chance the will give you a modest discount in price because of the negative inspection. 

I am aiming for 3+ units but I will take 2 if the deal is good.You guys have helped me tremendously in my short time and I have hit another roadblock and I wanted to ask for advice.

When I started out there were like 2 other STRs in my area and we were always booked and never needed to offer discounts, now my area is saturated with STRs and almost everyone is offering discounts and there are a lot of vacancies.