What type of income might be categorized as passive?

Passive income is generally defined as earnings derived from ventures in which a person is not actively involved. This type of income typically requires minimal effort to maintain once the initial investment of time or capital is made.

Income from rental properties is a classic example of passive income. When a property is rented out, the owner receives payments from tenants without needing to engage in day-to-day operations. Though some management is necessary—such as dealing with repairs or tenant issues—the income generated primarily comes from the asset itself rather than any direct labor or consultancy work by the owner. This distinguishes it from other forms of income, such as wages or consulting services, which necessitate active participation and work effort.

In contrast, income from a side job, hourly wages, and consulting services relies on active participation and ongoing effort, which disqualifies them from being categorized as passive income. Thus, rental properties exemplify the concept of generating income with little ongoing effort, solidifying them as a key source of passive income.