Pip: Welcome to The Hedge — where the tagline is "Brutal Honesty Over Hype Since 2008," and today that honesty comes with a calculator.
Mara: timothymccandless has been running those numbers on HOA reserve funds, and what he found is a gap between what homeowners' money is earning and what it could be earning — a gap that adds up to real dollars, every year, for millions of people.
Pip: Let's start with where that money is sitting and why nobody at your management company seems bothered about it.
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The Quiet Drain in Your HOA Reserve Fund
Mara: The central claim here is that HOA reserve funds — the accounts your monthly assessments feed into, meant to cover future major repairs — are being invested at rates far below what current law-compliant instruments are actually paying.
Pip: The post uses a real Southern California HOA as its example: 1,676 units, a reserve balance just over nine million dollars, and an assumed investment yield of 1.5 percent per year. The document states directly: "Reserve fund status: 74.35% funded — meaning the fund is already $3.1 million short of where it should be."
Mara: So the fund is already underwater, and the money that is in it is underperforming. At 4.5 percent — the rate available on FDIC-insured CDs, which California Civil Code §5510 explicitly permits — that same nine million dollars generates $409,028 a year instead of $90,145. The difference is $318,883 annually, or about $190 per homeowner, simply not being earned.
Pip: And the reason nobody fixed it is almost elegant in its simplicity: management companies are paid a flat fee regardless of yield. Whether your reserves earn one percent or five, their invoice is identical. No performance component, no penalty for leaving millions in what the post calls "what amounts to a passbook savings account."
Mara: There is a harder structural observation in the piece too. Large management companies place enormous combined deposit balances at specific banks — potentially hundreds of millions across their portfolios. The post notes that the compensation banks pay for delivering those deposits does not always flow back to the HOA. That relationship, when undisclosed, is worth questioning.
Pip: The board is not off the hook either, though the post is careful to call it usually an uninformed failure rather than a malicious one. Most board members are volunteers who see a 1.5 percent figure in a reserve study and assume the professionals handled it.
Mara: The post scales this out: 51,250 HOAs in California, an average reserve balance of two million dollars, a conservative 2.5 percent yield gap. The rough estimate is $2.5 billion per year in foregone interest income in California alone — and the national research firm Association Reserves found that 74 percent of HOAs nationally are currently underfunded, the highest rate ever recorded.
Pip: The fix the post describes is genuinely not complicated. Treasury bills are United States government obligations. CDs are FDIC-insured. Both are fully compliant with §5510. The industry has just successfully convinced boards that "safe" and "low yield" are the same thing.
Mara: The post gives four concrete steps any homeowner can take right now: ask in writing what the current yield is and when alternatives were last reviewed, read the reserve study's investment rate line, file a records request under Civil Code §5205, and talk to neighbors — because ten people asking the same question in one month moves boards in ways one person cannot.
Pip: The piece also announces the formation of the American Homeowners Protection Alliance, a California mutual benefit nonprofit aimed at organizing homeowners and pursuing accountability for management companies that underperform on reserve yield. The infrastructure for collective action, not just individual complaint.
Mara: And that collective framing is really the point — this is not one community's problem. The yield underperformance is baked into the industry's own reserve study assumptions because those assumptions reflect what management companies are actually delivering.
Pip: Which means the documentation of the problem is sitting right there in the annual budget report that was mailed to you, with a number on it that nobody explained.
Mara: The math is simple, the legal framework is clear, and the fiduciary obligations are established. What the post argues has been missing is someone willing to make it an issue.
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Pip: Fourteen million Californians paying into reserve funds that are already underfunded and earning below-market rates — and the fix is a phone call and a written question at a board meeting.
Mara: The fiduciary duty argument and the collective action framework are the ones to watch as this develops. More on the numbers as they emerge.
The Hedge 