@Jesse Jaramillo you are absolutely correct that you get a new, larger loan written to pay off the existing loan. You need to have enough equity position left in the property to leave the equivalent of a down payment. You may get a check back as long as you got a great deal on the property. "The trick is buying a property at less than 75% of its after repair value (ARV).
Keep in mind that your cash flow goes down!! I did a BRRR with my Lyons, IL four unit property, and the payment went up about $250 per month. You have to keep in mind this loss of cash flow.
John is correct, the trick is to buy the property at 70%-75% of it's ARV. Some may even say 60-65%. It's true what they say, you make your money when you BUY the property so make sure the numbers check out and use a conservative ARV. I would recommend shopping around your local credit unions, they're more accustomed to the cash out REFI's than the big banks. I have a local credit union that will give you 80% LTV which is the highest I've seen. So for instance if your house is appraised at $200K x 0.80 = $160K. You'll be getting a check for $160K.
@Jesse Jaramillo Yes it is possible to get a check back from the bank at refinancing a loan. I wouldn’t call it free money though for 2 reasons. 1) In order to have your “all in” (property cost plus rehab and all holding costs) be less than 75% you will need to find a very good deal which is harder to find nowadays with more and more investors in the market. So that means you put a lot of work into finding the deal and the money you get at closing the loan is the payment for all that work. 2) You are going to need to pay that money back plus interest over time. Hopefully it gets paid back by your tenant, but you will need to manage your tenant or pay a property manager to do that which is work. So the money you get at closing is for the work you do or have done with the property.