Pocketing money after refinancing?

[Isaac Black]

Something I do not fully understand is people saying they buy a house for 100k, fix it up for 40k, refinance with appraisal where house is work 160k, and then they claim they pocket 20k? This concept does not very well make sense to me, can anyone better clarify? Hopefully this is not too vague.

[Hattie Dizmond]

Originally posted by @Isaac Black:

@Hattie Dizmond: That I understand, my confusion is the guys who buy and hold for renting who refinance. They say that they pocket 20k after refinancing once improvements have been made.

 It's the same principle as selling.  You refinance, with a higher appraisal value, so you have forced additional equity.  If your original loan was for $50k, and the property now appraises at $175k, you can refinance at 80% of $175k, which means you can pull out  $90k in equity.  Now, if you put $50k into the rehab, you walk away with $40k more in cash than you had, when you started this process.  It isn't pure profit, because you still have a mortgage on the property, but you own a cash flowing (hopefully) property and have $50k more capital ($90k total) to put towards your next investment.