What state are you in?

Sounds like that woman has an equitable interest in the property as she contributed to the purchase price. Since this means she has a caveatable interest it may be hard to remove the caveat by going legal on her, and could be very costly in the supreme court. You may need to negotiate with her, or her parents – maybe they may be more reasonable.

Get some old law textbooks – you can get them very cheap from the uni second hand bookshops and learn as much as you can about caveats and equitable interests. At the same time seek the advice of a solicitor.

I would set it up like this:

PPOR value = $550,000
80% LVR = $440,000
Less existing loan of $316,000
= LOC of  $124,000

IP value = $300,000
80% loan = $240,0000

So you would have loans like this:
1. PPOR of $440,000 = this is secured against your home
2. LOC of $124,000  = this is secured against your home
3. IP loan of $240,000 = this is secured against your IP only

This way your loans are separate. Not cross collateralised. 3rd loan can be with a separate lender.
LOC may be used for deposit and costs such as stamp duty, legals etc. The interest should be deductible. You can also use this for all IP expenses, maybe even interest or interest shortfall – check with your accountant.
IP loan should be interest only.

A unit trust is great when different parties are involved. They allow the break up of profit in fixed shares, but offer no tax benefits or asset protection.  Look at having your units owned by a separate discretionary trust.

Yes, i would pay off the PPOR (if you do not intend to move out) and then reborrow the money to invest,

sounds like a lame excuse to me. But if you can find another tenant at the same or higher rent it is 'no skin off your nose'

One of my friends tried the horizon program. He had been a broker for 10+ years and had dip on fin services, PS 146 etc, and he missed out – it is very hard to get in, but looks like a great program if you can get in.

remember a trust is not a legal entity, it is just a 'scheme' so it is the trustee that is the legal owner of the trust's assets. Trustee's name goes on title. The loan can be in the trustee's name without mention of the trust or in the name of the trustee as trustee for the XXX trust.

And, lenders will require guarantees. This is usually the trustees or the directors of the trustee company, but some lenders will also require all named beneficiaries to give guarantees too (which you don't want!). so be careful in setting up your trust.

sounds like you are not renting to him, but he is just a boarder! Sharing expenses. should be any tax if just doing this.

I believe the interest on the redrawn money will be deductible if the money is used for the investment property.
But this will be less than ideal for a number of reasons relating to working out the tax.
– If the loan is PI and it is decreasing it can be hard to work out the proportion of the interest which should be claimed.
– if extra funds are paid into the loan the funds must be applied to both portions (investment and no investment portion) in the same percentage of the loan.

eg if you have a 95,000 loan with $5,000 redraw. YOu take $5,000 out for investment. then 95% of this loan is non-deductible.
if you then pay $100 into it, above the interest, then 5% of this $100 is attributable to the investment portion. if the next month you pay another $100 in, then 5% of this must come off the investment portion. So you can see it gets complex.

a way to avoid this is the set up a separate loan account.

yes, i think you will have a uncommercial rent and this may lead to problems with the ATO.