What I mean is that I currently have a mortgage of $600k. So in order to be able to transform this into a deductible loan once I turn my PPOR into an IP, I'm not allowed to pay it off, so I'd have to set up an offset account and slowly put $600k into it.
For simplicity's sake let's assume my house is worth $1M (it's not).
This means that I can take out an extra $200k LOC which I can use to invest with (20% LVR).
However, if I had the $600k offset sitting against the $600k, I could instead pay it back and get a $800k LOC instead.
Assuming 20% deposit and 5% costs, this means that I can only buy $800k of property if I have the money in an offset as opposed to $3.6M if I pay the principle back.
I know that this is probably a little oversimplified, but hopefully it illustrates the point that I'm trying to make.