What terms and conditions should I add to our contact to protect the interest of both parties?

I get pictures and a good idea of the condition of the property.

The other issue is ROI - you'll need quite a bit of plumbing; if you have a lot of galvanzied pipes in poor condition and low pressure you may want to consider pex anyway, at that point you could seperate the systems out.

That is far better than letting someone live rent free.

In addition, prices are based upon a market which is always moving, imperfect (prices are not always in line with value), and has other factors not considered (such as distressed conditions of the property or the owner).

If the property is in a condition that prohibits getting bank financing, then your only other real option is private/hard money.

It has good cash flow but my question is what kind of questions do I ask the agent about the condition of the place.

I have worked with many FHA buyers and I only had a problem with one property where the garage roof was in terrible condition and needed to be replaced.  

Obviously, there are several considerations: price of home, financing options/terms, "condition" of home, etc..

@Jason Proute getting the loan will depend on the condition of the property.