I knew some people who did – had to sell their properties in the end.

If you borrowed it and place it into another investment loan then it would be just a refinancing of part of the debt. deductbility should be the same but you may still retain access to the funds if the second loan has redraw.

But you would be required to aportion the interest between the 2 and it would get complicated if you were to ever live in the 2nd property.

What are you trying to achieve?

hi Catalyst

Yes, renovation and selling would be good. But I took the term flipping to mean just buy and sell straight away – possibly without even settling on the property.

Yes. The extra tax on the new loan, ie the redrawn amount, will not be deductible because you will be borrowing it and placing it in a savings account.

Capital gains haven't happened yet – so hard to evaluation. But no point in investing without them so you need to consider.

Its up to the individual. Some keeping rolling over indefinitely. Others like to pay off a main residence first and then start paying off the investments. Others just have PI on all loans (and lose a bit of tax).

But having IO for ever may sound crazy initially – but think back to your grandparents/parents property which they bought in Sydney in 1960 for $16,000. Now worth $1mil. Imagine if they borrowed 100% IO and kept it IO for 42 years. Today the loan would still be $16,000 with interest of about $1000 per year.

If they rented it out they may get $40,000 per year in rent!

If you said the primary reason to capitalise interest was to pay off the home loan sooner then the ATO will likely deny the interest claimed. See the recent draft
TD 2011/D8
Income tax: does a taxpayer's purpose of 'paying their home loan off sooner' mean that Part IVA of the Income Tax Assessment Act 1936 cannot apply to an 'investment loan interest payment arrangement' of the type described in this Taxation Determination?

Living on equity means borrowing or living on borrowings. Borrowings will obviously increase. Any increased interest won't be deductible either.

What if you lived on rents instead and capitalised loans? interest would probably be deductible if set up correctly

Thats the way. Make sure it is interest only too.. If you have an offset on the PPOR even better as your rents and wages can sit in this and help save you even more.