Passive income refers to the earnings an individual receives from a real estate investment in which they are not actively involved on a daily basis. This can come from rental income from properties, dividends from real estate investment trusts (REITs), or returns from real estate crowdfunding platforms, among others.
The concept of passive income in real estate contrasts with “active income,” which requires regular, hands-on management and involvement, such as flipping houses or managing properties directly. The appeal of passive income is that it allows investors to generate revenue with minimal day-to-day oversight, ideally leading to a stream of income that requires little to no effort after the initial investment and setup.
For example, an individual might purchase a rental property and hire a property management company to handle the leasing, maintenance, and tenant issues. Although there are costs associated with the management company, the investor can earn rental income without the daily responsibilities of being a landlord, making it a source of passive income.