In answer to all the questions:
1. the house is the PPOR
2. the interest is 8.3% (ex-construction loan)
3. the LVR is greater than 95% causing issues with refinancing
4. the plan is improve cashflow (and equity) now to prepare for the future ( i feel we are just stagnating and putting ~$35,000 in interest against the house every year. Surely there is better ways to invest our money?)
5. Another thought is to buy my wife's portion of the house (50%) and pay the stamp duty (~$5.5k) with a view to rent it out ASAP. 
6. Renovation is not really an option. Some smart changes may increase the value but only marginally. All gardens are in good condition and new kitchen/bathrooms. 
7. Investment option is advised by my advisor provide a "tax effective" investment (ability to hold an extra property (~$350k with +$1998/wk return) with only ~$27k down). Efectivelly allowing for growth of two properties over time instead of one.

Thanks for all your thoughts is is definitely helping me look at all the options and finding the right fit.