Investing in real estate is often viewed as a sign of success, but from an accounting and financial perspective, it is more accurately described as a long-term wealth-building strategy. A recent example is entrepreneur Arshie Larga’s completion of a four-storey building, which serves both commercial and personal purposes. Beyond the inspiring story, this investment highlights important accounting concepts every aspiring investor should understand.
Capital Investment, Not an Expense
In accounting, building a property is not treated as a simple expense. Instead, it is recorded as a “capital asset”under Property, Plant, and Equipment (PPE). Construction costs, professional fees, permits, and other directly attributable expenses are capitalized on the balance sheet. This reflects the idea that the building will generate economic benefits over many years, not just in the current period.
Depreciation and the Matching Principle
Once the building is ready for use, its cost is gradually recognized as an expense through “depreciation”. This follows the matching principle, where expenses are recorded in the same periods as the revenues they help generate. Although depreciation reduces reported profit, it is a non-cash expense, meaning it does not require actual cash outflow and may even help lower taxable income.
Cash Flow and Income Opportunities
Multi-storey buildings provide flexibility for income generation. The ground floor may be used for business operations, while upper floors can be leased out. From a financial standpoint, this creates recurring cash flows that help recover the initial investment. However, careful cash planning is essential, especially during construction when large cash outlays can strain liquidity.
Asset Appreciation and Financial Strength
Unlike many consumer purchases, real estate generally appreciates over time, depending on location and market conditions. In accounting terms, the property strengthens the owner’s balance sheet by increasing total assets and net worth, contributing to long-term financial stability.
Beyond the Financial Statements
While accounting focuses on numbers, investments like buildings also provide strategic value—business expansion, passive income, and legacy building. These benefits may not always appear directly in financial statements, but they play a major role in sustainable financial decision-making.
Final Thoughts
From an accounting perspective, investing in a building converts cash into a productive asset that generates income, appreciates over time, and strengthens financial position. Understanding how this investment is recorded and managed allows investors and entrepreneurs to make smarter, long-term financial decisions—one building at a time.
