Understanding BRRRR analysis when using conventional loan

[Michael Cox]

Hello,

My name is Libby Cox (I'm the members wife). We are currently working towards purchasing our first investment property. We are hoping to use the BRRRR method. After evaluating our potential markets it has become clear we will not have enough cash for a cash purchase as well as a rehab so we are considering the possibility of using a conventional loan for the original purchase of the property. I have mastered the BRRRR tool when a cash offer is on the table, however I am having trouble understanding the 70% ARV rule when you already have a loan out on the house... I understand that you can take out up to 70% of the ARV post rehab, but when considering the property will already have a loan on it, do you need to subtract the amount of the original loan from the 70% you are trying to pull out? Am I understanding this correctly or am I completely wrong..

Ill give an example. 

Purchase Price: $70,000

Down payment: $17,500

Closing costs: $3000

Loan Amount: $55,500

Rehab Costs: $15,000

ARV: $110,000

So the 70% of the ARV would be $77,000, but we would already have a $55,000 loan out on the home. Would I need to subtract that from the $77,000 in order to determine the actual amount of equity we could pull out? So we could pull out $22,000?

Any help is appreciated=)

I am aware of the seasoning period as well as the possibility of other costs to close the loan. Mostly just hoping for clarification on the analysis aspect. Numbers are hypothetical. 

-Libby