I'm originally from the area and have been starting to look at some properties there as I am living in New Jersey.

Quote from @Roger Flot: I was reviewing some renovated listings in my area and one indicated that even though the house was originally built in 1920, because of all the renovations bringing the house to current code, that you could get 2024 rates on insurance. 

Say my original loan was $500K, my cost basis with improvements is $1M and I cash out refinance with a $1M loan (can I include the interest of the new loan into cost basis since it’s reimbursing me my cost basis)?

The refinance step is where you pull out this equity, typically in the form of a cash-out refinance.Here’s how it works:You refinance the property at its new appraised value (after rehab and renting).You take out a new loan based on that increased value, ideally for the full amount or more than what you originally paid for the property.The goal is to pull out enough money to cover the cost of the original purchase and rehab (or even more, depending on the property’s appreciation).This allows you to recover your initial investment, which can then be used to buy your next property.5.

The main house is original (this place was built in 1924, very cool) and we rent it for $1,650/month.

I was told that the dilution of my original investment would be 21.8% if I did not participate.

I recommend that you find a trusted or recommended Mortgage Loan Originator (MLO), who can give you options for property-based loans (mostly investment loans) and they don't use your taxes but the P&L of the property.

My name is Cesar and I am originally from Puerto Rico but have been living in Virginia for over 20 years.

Like @Tom Wong I'm originally from Honolulu, and have been in Japan since '97.

Some of these comps aren't in the same subdivision and the sqft for all of them are a lot less than the original property.