Good question. Here is my answer:

Good question.  If you use cash-out refi from house A and use it as down pwyment (let's say, $100,000, as an example) to buy house B with a mortgage, then you do not have money out of your own pocket in house B.  Theoretically, it could mean infinite in your rate of return.  However, practically, I would still use rate of return = (cash flow + principal reduction + appreciation)/$100,000 to estimate whether it is worth buying house B or not.  This is especially true when you are faced with a choice of buying B, or C, or D.  This would tell you which house provides the best return.