Advice on setting up accounts for investment

Hi,
Only new to this site and haven’t made a post yet, (been too busy reading).
Before I start I would like to say I think this forum is great, as there is heaps to read to better my knowledge, and answers available for my questions.

Really after a bit of advice more then anything.

I have 2 LOC secured against my home. Value $100,000 owe $70,000.
One with a limit of $68,000 and the other with $5600.
As I have some direct deposits and interest for managed funds coming out of the smaller one.
Purchase price of house was $92,000. (Home to be re-valued, as just done some renovations).
Add the $6400 ($8000 – 20%) to the $5600, which gives me $12000.
I had 20% deposit on the home when purchased (Jan 04), so I never had to pay mortgage insurance.

There is property available close by for around the $80-100k mark, which have good income but not much growth.

I would like to purchase one as whilst living close I can do most of the improvements/repairs myself.

I could use the equity in the small LOC as the deposit for a investment loan.

Could I then set up another loan I/O or P/I for the investment loan in which the repayments could come out of my smaller LOC account? Generating tax deductions and with the rent payments going into my larger LOC account? I.E. paying off our home.
Then every six months or so transfer equity from the larger account to the smaller one?
Which is reducing the debt in the larger LOC and making the smaller LOC debt grow (eventually be bigger).

I would like to know if this is the best way to go? Also if allowed I.E. Hart case last month. Would there be a better way to set up the accounts? If so what would it be?

After a year or so, with mine and my wife’s wage’s helping payoff the larger LOC, we could hopefully purchase another rental in a better growth area giving a balance across the property portfolio.

Please let us know your thoughts as my wife and I are only young and would like to get into the property market.