Good first property... I think

[Kevin Smith]

Through a family member I was given a chance to get a really good deal on a rental house.. the house has had the same renter for over 10 years. And he has no interest in going anywhere else.. the house could definitely use some updates to make it worth even more. I purchased the house cash for 15k less than the as-is appraisal. It is a 2 bedroom 1 bath house in a area that is growing but this is still 3 miles into a more rural area.. it has a 4 season back pourch that i can convert into a 3rd bedroom and a 1/2 bath pretty easily.. All sounds good right.. I want to make improvements tp get a good amount of equity out and get another property... but I don't want to price my tenant out. He is a good tenant friend of the family keeps up the property and pays early. but is already paying 100.00 less for how the house is now. And once I put 10k into the property he would be paying 2-300.00 a month less than the going rate in the area.. I should get 60k cash from a 75% LTV but by doing that it will not cash flow after payment and expenses. He has agreed of a slight rent increase as obviously the house will be nicer. But I know he can't pay the full amount I could get on the open market.

is it just a bad idea to consider that the cash out is a better deal than the cash flow.. 

Thank you for any advise