Passive income occurs after a person has expended time, effort and money into an expenditure, according to About.com. Book royalties are an example of passive income, as are pensions and rental payments from real estate.
Creating passive income frequently requires high-quality and intense work up front, explains Bankrate. Passive income also comes with risks. For example, a person who intends to earn passive income via a rental property may see the market for the property drop or end up with tenants who seriously damage the property. Along the same lines, a person who writes a book may get little passive income if the book does not sell well.