However, he wants to keep the whole $500k so we have to get our hands dirty to extract the equity.

Everyone of the people I get lists from use a ARV number to extract absolute maximum value out of the deal.  

However if I do a BRRRR I can achieve infinite return by extracting all of my investment.

The penalty did not bother me, in the long term it was more profitable to extract the money and move on the next deal rather than avoiding the penalty and not having the funds for my next project.

After refi to extract investment at current rates, the RE is huge cash flow negative.  

Fuel for the day: Cucumber Botanical soda water, zest of lemon, and a dash of Guaranaplant extract.

Are they extracting the items to be depreciated from just the FixedAsset schedule?

I call cashflow income generated by the asset.You can refinance an amount less than your down payment, equal to your down payment, or more than your down payment...or you can consider your down payment left in the property (the equity created) and the refinance is extracting the value added from rehab (profit). 

I agree with Scott's post; I would start by looking at the bit that I extracted and quoted from Scott's post.

An insane increase in lawsuits by individuals looking to target high asset individuals (investors) and extract assets from them by lawsuits.