If you, the homeowner pulls permits on the home, you will sign an affidavit that will prevent you from selling the house for an entire year.

All of the above assumes that the original house needs little renovation work.Before committing with a contractor, make sure that you get with the local town to make sure that you are allowed to split the house and there are no issues that would prevent it (like egress, unit separation, etc). 

Sometimes they can make the property negative cash flow or in a worse case scenario prevent you from even leasing the place to anyone but family members.

Unless you are on the loan they are prevented by the FCRA to discuss the property with you.

Not sure about preventing them.

How would you prevent your seller from seeing how much you make off this deal?

Then just putting passage levers on them for entry to prevent them from locking themselves out. 

Interestingly, he had not even paid his water bill since moving in three months prior, so in essence it turned out to be "our water" because we had to pay the bill to prevent a lien on the property.

Did not effect my bottom line on that property but did prevent my ability to do more flips. 

The low inventory and relatively strong economy has prevented a bubble.