Clarification on the Refinancing Step in BRRRR

[Andrew Rellinger]

Hello I have never bought a house before, but am looking to take action and get started in REI. Currently I am working on saving capital, gaining knowledge, laying some groundwork, and assembling a team. So the process of BRRRR seems self explanatory, however, the refinance step is providing me with great difficulty in how it helps to builds wealth.

Example of where I am confused:

You buy a house for $100k in cash and decide to do the BRRRR method. You pay $15k in rehab. The ARV is $150k. There are no closing costs. The place rents for $2k so it cash flows quite well. Then you refinance it and get 75% of the ARV back which is $112.5k. You could use this money as a down payment on a new property, but since you refinanced, you have to pay off the mortgage. This means you spent $115k in the house in cash for purchase and rehab and now you owe the bank $112.5k.

1. Wouldn't this make you more in debt, why refinance when you could live off the cashflow? Why is the refinance step useful? it seems silly to get a mortgage on a property when you paid in cash in the first place.

2. How is it possible to refinance a property that you bought in cash? In my head this is the same as buying a car with cash then asking to have an auto loan. it makes no sense to me. 

3. Is there a certain type of loan you get when refinancing so that it will free up cash? I guess I am confused on the process of refinancing. Do you get the cash in hand from the loan you took out? 

4. When you refinance do you get the money back in cash? I am confused on how this all works. 

5. Are there closing costs when you refinance?

6. How exactly is refinancing freeing up cash? You buy a property in cash and then you get a mortgage on it that you have to pay back. then you buy another property with this cash and refinance that property and now suddenly you have 2 mortgages. How is this beneficial? Can someone provide me a clear example to show the benefit of this and how it builds wealth?

Clarification on these questions would be extremely helpful. Thank you!