Realities of cash out refinance after 1031 exchange

[Jack B.]

I've read/heard that doing a cash out refinance post 1031 exchange can allow you to tap equity tax free. But does it really?

It seems you can also not deduct the interest expense tied to the cash you just took out, UNLESS you invest the money in more real estate. You'll just be paying the money you would have saved on capital gains tax on non deductible interest over the life of the loan instead AND have the extra cost of the refinance fees...

This doesn't seem like a penalty free way of taping equity.

Surely there has to be some exit strategy that minimizes giving your money away to everyone. By the time realtors, banks, appraisers, escrow and inspectors all get paid, you've given away half of your money....