Key takeaways

• Owning an investment property or investing in listed property funds is one way to generate passive income

• Shares can be a good passive income stream as companies generally pay dividends

• Starting a business on the side, especially one that doesn’t require a huge amount of your time, could potentially be an attractive way of generating passive income.

In a time of rising living costs, creating a sustainable passive income stream could improve your financial wellbeing and alleviate financial stress.

Better still, passive income strategies cannot only help to add to your regular income, they could also provide a first step towards replacing the income from a job altogether.

Aside from growing money in super, we discuss five ideas that could generate passive income.

1. Earning passive income through property investing

Owning an investment property

Buying an investment property probably means borrowing money. But depending on your type of loan, over time the debt is likely to be paid down. The rental income may also go up so you will eventually have a property that generates surplus cash.

If you hold the property long enough, the debt is likely to be repaid. You can then enjoy the full benefits of a passive income source.

Of course, there are downsides to owning property like council rates, insurance, repairs, and upkeep. There can also be issues with tenants, some of whom may not treat the property well. And you can’t sell a bathroom if you need to access part of your investment.

Investing in Australian real estate investment trusts (A-REITs)

For those who don’t want the hassles associated with direct property ownership, there’s the option of investing in listed property funds — also known as A-REITs — which provide exposure to commercial property. This may provide another source of passive income.

In the case of A-REITs, property management, tenancies, and sourcing of new properties are the responsibility of the manager of the A-REIT. It’s also diversified across lots of different property sectors, and regions.  

But values of A-REITs do fluctuate more because they’re listed on the share market. Investors are constantly buying and selling A-REITs every day and in doing so they’re revaluing them constantly. Unlike investment properties, which are not bought and sold so frequently.

2. Earning passive income through shares

Shares can provide another good passive income source as companies generally pay income in the form of dividends.

You can also diversify your share investments, especially if you own managed funds, giving you exposure to Australian as well as global companies.

Another way to invest in shares is through Exchange Traded Funds (ETFs). These are listed on the stock exchange and offer exposure to many industries, companies, and countries.

Shares, whether directly owned, or indirectly owned through managed funds and ETFs, are generally liquid. This means you can usually buy and sell them quickly, and generally it doesn’t require a lot of money to start investing in them.

3. Earning passive income through investing in bonds/fixed income

Governments, as well as companies, borrow money from investors. Those borrowings are known as ‘bonds.’  In exchange for those borrowings, governments and companies make interest payments.

It’s because of the interest payments made by bonds that they are also referred to as ‘fixed income’ investments.

Government bonds, especially those associated with the governments of advanced economies like Australia and the UK, are generally considered to be less risky than bonds issued by companies.

Bonds are typically regarded as being less risky than shares. That said, bond values can go up as well as down, so they’re not risk-free.

There are many types of bonds with different structures and time horizons. Bonds are issued to institutional investors, like super funds, and minimum investments are generally measured in millions of dollars.

However, bonds are made accessible to everyday investors through managed funds as well as bond ETFs. They may therefore provide a good source of passive income.

4. Earning passive income through a side hustle

Starting a business on the side, especially one that doesn’t require a huge amount of your time, could potentially be a way of generating passive income.

The possibilities for side hustles are endless. There are people doing everything from creating their own TikTok¹ and YouTube² content, to blogging, building and selling websites, and being online reviewers for products ranging from food to cars, and much more.

To set yourself up for success, you’ll need to conduct thorough market research to identify side hustle ideas that have the potential to generate passive income.

Consider factors such as market demand to ensure there is a large audience for your chosen niche. Evaluate the level of competition and assess the income long-term potential too.

You’ll also need to be prepared to invest time and effort upfront to set up systems and establish a strong foundation.

5. Earning passive income as an Airbnb³ host

If you have an investment property, rather than renting it out for long-term tenancy, you could make it available for shorter stays through Airbnb as a passive income source.

Of course, you don’t even need an investment property to be an Airbnb host. Some people rent out a spare room in their house or apartment.