Passive income refers to money you earn with little or no active effort. It comes from sources other than your full-time job, side hustle, or a contracted client (in the case of self-employment). In any of those working relationships, you’re expected to put in hours or churn out deliverables to get paid. In contrast, passive income doesn’t require active labor. It’s often thought of as extra cash you can make in your sleep.
That’s the typical mindset when it comes to passive income. However, the truth is that passive income is a modern money myth. Most passive income streams require careful preparation. Even once they’re up and running, they require occasional attention, so they aren’t fully passive. One example is rental income, one of the most common passive income streams, according to the Internal Revenue Service (IRS).
Once a property is rented to a tenant, you don’t have to do much beyond collecting rent. Hire a property manager or property management company, and you don’t even have to worry about landlord tasks like building maintenance. However, you first need to acquire a property, get it rental-ready, and keep it that way. That upfront prep work requires an initial investment of money and effort.