Cash Out Refinance and building equity

[Evan O'Brien]

Hello BiggerPockets Community, I have a question regarding building equity in a property by rehabbing a property and doing a cash out refinance after the seasoning period since the property has been purchased has been completed.

Hypothetically speaking, let’s say you purchase a rental property for $200k with a 20% down payment of $40k and completed $20k in rehab costs to update the property and get it rent ready.

Once the seasoning period ends, an appraisal is completed on the property for the cash out refinance and the appraiser determines the ARV of the property to be $255k, does this mean that the amount of equity in the property would be $65k? (Based upon the down payment and the amount spent on repairs completed on the property). Or is the amount of equity in the property based on the appraisers determination of the ARV of the property? (20% of $255k would be $51k in equity, not including principal pay down of the mortgage).

And let's say you complete the cash out refinance on the property at 75% LTV, would the correct amount of equity you'd be able to pull out of the property be $31,250 (75% LTV of $255k= $191,250 - $160k amount owed on original mortgage)= $31,250) any information or feedback would be greatly appreciated!!