Smart Strategy

That is just one strategy and whether it is smart or not would depend on your circumstances. Could you give some more details?

I guess you don't have any cash lying around and you are worried about having a large loan on your new PPOR property and smallish loan on your investment.

If you meant, in the top post, that you would increase the existing loan to use as deposit for the new purchase, then the extra interest incurred on the increase would not be deductible as the purpose of the borrowings would be personal use.

If you kept things as they are the original property would still be slightly negative geared, so there would be some tax savings. But you would have a large loan on the new one and this interest would be non-deductible.

A possible solution is to sell the existing home and then put the proceeds on to the new loan. $120,000 is a fair amount and the interest saved would be around $9,600 per year. You could then reborrow the money to buy another investment property. This would be converting approx $120,000 in non-deductible debt into deductible debt. The major downside of this is the stamp duty you would have to pay on the new replacement investment property.