“Passive income is money you earn in a way that requires little to no daily effort to maintain. Some passive income ideas—like renting out property or building a blog—may take some work to get up and running, but they could eventually earn you money while you sleep.”
While the definition above is a good starting point the most important thing to realize is missing. Passive Income is taxed at a lower rate than most other income. Earned Income (most common) is subject to Federal, State, and Social Security Taxes. Passive Income is only subject to Federal and State taxes.
Self employed people pay both the employer and employee portion plus medicare which ends up about 15 percent. Passive income avoids this taxation resulting in a 15 percent savings over W-2 income.
This is another reason that Real Estate Investing is tax advantaged. You can make less in real estate and possibly keep more of it than your real job. This is the case for me currently, with passive income of 100+ units it pays me more than my earned income from all other sources combined.