Debt recycling by loaning money. Is it possible?

Ummm ... my understanding of "debt recycle" strategies is that you direct investment income to paying down private debt while letting the investment loan "run" either by making minimum investment debt payments or capitalising interest.

Then you really need the underlying capital growth on the investment to set off the increasing loan burden (and will be tax sheltered by the CGT discount when sold). Your planned investment is by on-lending funds which does not have a prospect of capital growth and is all taxed at maximum rates.

Your plan depends upon a sustained large interest margin which may only be possible by making a risky unsecured loan. To get a low interest cost on your borrowing you will need to secure against a residential property which is also then at risk.

You will need to factor risk, tax and returns into your plan.