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Bad Debt, Bad Signs, and other key metrics - where to draw the line?


TUG Member
May 18, 2008
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Curious what you guys think about the financials of timeshare resorts, the most important metric of which is probably the amount of Bad Debt - but how much Bad Debt is too much?
What is the best way to look at this when evaluating the financial information we are given by the HOA.
In particular for those resorts that are in financial trouble, what was the tipping point that became the point of no return?

Here are my own thoughts after reviewing the financials for every resort in the state of Florida.

First of all there is probably some absolute dollar amount of bad debt regardless of the size of the resort that signals trouble.
In my mind it is somewhere around $200,000.
If a resort has $200k or more of bad debt, to me, that's a bad sign.

Second, how much money is in the Operating Reserve fund - this is the cash cushion the resort has to draw upon for operating costs that exceed the amounts in the annual budget.
The balance in this fund tends to fluctuate over time, rising and falling as expenses occur and could even be exhausted or slip below zero in certain cases.
In the event of a significant shortfall, the fund could be built back up over time with transfers from the annual budget.
However, to my mind, in any case where the Operating Fund has a negative balance of -$250,000, that is a bad sign.
In addition the ratio between the amount of Bad Debt and the size of the Operating Fund is significant.
In my mind, when the Bad Debt exceeds 20% of the Operating Fund that is a bad sign.

Third, the Replacement Fund - the fund where money is socked away for replacement costs for roof, furnishings, other capital projects - essentially known costs of depreciating building components that can be prudently planned for in advance (and required by law in some states to do so according to a formula wherein basically the depreciated value of the asset based on its remaining useful life combined with the balance set aside for replacement of that asset always equals the replacement cost).
Typically the Replacement fund is handed over by the developer with a significant balance and maintained by the HOA over time.
Large chunks are expended and the balance can decline and then will be built up again over time but under normal conditions (no fire, flood, earthquake, hurricane, etc.) should always have a significant balance even after a major expenditure.
To my mind, a Replacement Fund with a zero balance or below is a bad sign.
One of the areas where resorts get into trouble is when they raid the Replacement Fund to compensate for large amounts of Bad Debt.
Therefore, to my mind, when Bad Debt exceeds the balance in the replacement fund, that is also a bad sign.

So in my mind these 5 metrics spell trouble:

1. Bad Debt greater than $200k
2. Operating Reserve Fund with a negative balance of -$250k or below
3. Replacement Fund with a balance of zero or below
4. Bad Debt > 20% of Operating Fund
5. Bad Debt > Replacement Fund

But I would love to hear your opinions on this.

I will also say, as I reviewed Florida resorts, in my mind it is likely that no single one of these metrics alone spells doom.
However it turns out that many resorts cross the threshold in more than one metric.
In data for 2017 for example, of 399 resorts for which I have data, I found:

- 239 resorts with one of these metrics
- 89 with 2 of these metrics
- 50 with 3 of these metrics
- 20 with 4 of these metrics
- None with all 5 (Thank God! ;) )


TUG Member
Jun 13, 2005
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Resorts Owned
HICV, Westgate (second cousin, twice removed)
I like your thinking, but as bnoble points out, you need to see how the those indexes are as a percentage of the total budget. Also, trending would also be useful.


TUG Member
May 18, 2008
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I agree trending is important but just as when you go to the doctor for a physical sure the doctor wants to know whether your lab results are better or worse than last year's but he will first look at this year's results on their own to see how healthy you are at the moment. If your blood pressure and cholesterol are life threatening he won't wait to see what they looked like last year he'll send you straight to the heart surgeon.

As to percentage of the Operating Budget, I agree. What then is the percentage that you think constitutes a problem?