Maybe I'm missing something, but why doesn't she just take the new job? Whats forcing her to turn up to the shop every day? You said she'd be prepared to lose the 70k and walk away, so whats the difference between signing everything over for free and taking the loss, or just going on with her life?

By redrawing, you're essentially re-borrowing. You're borrowing those funds to buy your PPOR. The LOC likewise is a borrowing to buy your PPOR. Neither of these are deductible debt.

Out of interest, if buying a new PPOR with greater than 100% lending is really something you want to do, to make things simpler (if your lender will allow it), I'd do a variation on your existing loan to reduce the balance to $325 (if needed, experts could advise) and take out a $155k LOC, so at least this way you've clearly separated the two types of debt.

Its probably worth doing the sums on just selling the IP, putting a large cash deposit down on the PPOR and then using that additional equity to purchase a new IP.

There's a difference between administering, and managing.

Well, technically he does. But yes.

Well, it depends on how much money you have to put into a loan. For instance, historically houses close to the CBDs of the capital cities have had the highest capital growth, so it makes sense to buy an investment property in a suburb fairly close to the CBD if you want to maximise capital growth over the long term. However, most people would struggle to put together even a 10% cash deposit for the prices you need to pay in those areas now. Bare in mind, you won't even get a 4% yeild in Melbourne inner suburbs now, so to be cashflow positive you'd need a significant deposit, at least 50% maybe more (assuming a basic buy and rent strategy).

On the other hand, you might buy a house in a regional town with a 9-10% yeild and have postive cashflow even with a small deposit, but you're much less likely to get similar capital growth over the long term.

So, it might be possible to settle onto something in between. Say a well located home in a thriving regional centre, or further out from the CBD in a capital city. Hopefully have decent growth potential, and get around 5-7% yeild. Then its just a matter of how much deposit you need to turn it into a positively geared property.

So, some reasons why:

If people want to use the equity in their PPOR, then its essentially a 100% (or higher) loan, so its not a simple matter of paying a bigger deposit to bring costs down.

If people think the market is growing quickly, it may pay to buy the place now even if its negatively geared and lock in the price, rather than risk the market growing faster than they can save a big enough deposit to make it positive, then they pay it down quickly to turn it into positive sooner rather than later.

If people think that while the property is negatively geared at purchase date, they expect rents to rise quickly and for it to soon become positive just through rents alone and they want to lock in the price.

And of course, the main reason the masses do it:

If people believe that the capital growth of the property will outweigh the negative cashflow, and in the meantime some of that negative cashflow comes back via tax return.

I can't remember where I read it (probably API magazine but maybe not) where the person being interviewed owned a lot of property, and the numbers were something like $350k rental income per year, net loss of $70k per year, but he compared that to capital growth of around $450k per year. Numbers might be slightly off, but they were what he was figuring on. To him, paying $70k p/a to get growth of $450k p/a was worth it, and obviously he must have a very good income in the first place to handle the negative cashflow.

It depends on how much you outsource basically. You could (and I think many people do), setup the SMSF then get someone else to administer and make investment decisions on your behalf. I've chose the middle ground for mine, our accountancy firm has a superannuation division, they handle the administration and auditing, but I make the investments. On the simplest side, this just means I forward on any purchase/sale contracts etc, and the monthly statements from our property manager, however obviously if you want to make good returns with your super funds, you need to study a lot to make sound investment decisions. That becomes a bit of a 'how long is a piece of string' time frame.

Is the savings account a 100% offset v's PPOR loan?

When you say all your salary goes into the PPOR IO loan, do you mean directly onto the loan itself, or into the savings account?

Assuming its a 100% offset account, I agree wholeheartedly with Richard. Put every cent you earn into the offset account. That has the same effect of reducing interest on your PPOR (interest which is non-tax deductible) and have the interest for both the PPOR and the IP taken out of the offset account. This means the maximum amount of your money possible is reducing your non-deductible debt.

Now, if you happen to stay in your PPOR forever,  you're no worse off than if you had paid down the loan instead. Thats the purpose of the off-set account. If you sell, same deal. However if you do as a lot of people on here want to do, which is to move out and keep it as an IP then theres a big difference. If you save say 100k in the offset account, you can withdraw that (as its just savings) to use as a deposit on your new PPOR, leaving the existing loan on your current PPOR (which will become an IP) at the full amount. This debt is tax deductible now, and the debt on your new PPOR is a reduced amount.

On the other hand, if you've dutifully paid down the loan itself on your current PPOR, then when you redraw/refinance to purchase a new PPOR, the entire debt is non-deductible.

Big difference.

Somebody may have a better answer for you, but when I read this post, the question that comes to mind is "whats your plan?".

Why are you investing in property? Why did you choose Geelong in the first place? What attracted you to buying there? Is there any reason you believe St Kilda now suits your plan better?

I think part of the reason you're having trouble deciding, is you haven't really nailed down what you want. Even the fact that you "assume" St Kilda is a good buy now, based just on the fact that auctions are passing in. Do you know what you can actually buy there for? What they'd rent for? Are they bargains now, or were they overpriced before? Have the prices actually dropped, or just less selling? Are there any motivated sellers?

Think about what you want from an investment property. Think about your budget (both purchase price and any ongoing funding required), and then work out which area you can afford to buy in that meets your wants.

A fairly common approach is that of "adding value". For instance, if yields were 5% (an easy number that basically equates to weekly rents being purchase price/1000), then if you can buy a $200k "shack" and turn it into a $300k delight, then you've turned it from earning $200p/w rent, into $300p/w rent. Obviously the key is to spend a lot less than $100k doing so.

Another option might be if that "shack" is on a big piece of land, you could subdivide and sell off some of the land. For instance if you bought that $200k shack and sold off the back half for $80k then the front half (with the house) has cost you $120k (obviously way simplified numbers ignoring costs/etc), which maybe you can rent for $160 p/w.

Or you could build yourself on the back getting a second house for cost price.

Or sell both, and buy something with a big cash deposit from the profits. The more deposit, the less interest.

Also, LMI can reduce risk. Every time I've purchased (other than through SMSF)  I've used LMI and got a bit extra as well. If you have a 100% offset or similar, you can park that extra in the account, so your interest is no more than it would have been if you didn't, but you now have a built in buffer in case of emergencies.