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Choosing a Tenant – The Most Important Single Decision for a Real Estate Investor

The wrong tenant can ruin the return on even a good investment for years. The right tenant is an investor’s best partner. How can this decision be made systematically—and how will the new Residential Tenancy Act, which takes effect in October 2026, change the process?

When it comes to real estate investing, there’s a lot of talk about purchase decisions, financing strategies, and market analysis. All of these are important, but in practice, there’s one decision that matters more than any other: who you sign a lease with.

A good tenant pays rent on time, keeps the apartment in good condition, reports problems promptly, and stays in the apartment for a long time. A bad tenant pays late or not at all, causes disturbances to neighbors, neglects the apartment, and may move out after just two months. The difference between these two can amount to thousands of euros and months of stress—and that difference is determined at the moment of selection. No subsequent action is as inexpensive or as effective as a careful selection made in advance.

This is precisely why selecting a tenant deserves to be treated as an investment decision, not a routine task.

Why has it become more difficult to select a tenant?

Changes in the rental market have also altered the nature of the decision-making process. In the Helsinki metropolitan area, the supply of rental apartments is exceptionally high, and in many areas the power has shifted to the tenant: they can choose, compare, and even negotiate the rent. This puts landlords in a bind between two objectives. Criteria that are too strict leave the apartment vacant for weeks, which is a direct loss—but screening that’s too lax introduces risk. (We discussed this oversupply situation and ways to stand out separately in the article“The Tenant’s Market in 2025—How to Stand Out When There Are Too Many Apartments?”)

The situation is different in regional centers: in certain locations, supply is lower relative to demand, which gives landlords more leeway. But there is competition for good tenants everywhere—even the best candidate won’t choose a property where maintenance or communication is lacking.

It is essential to understand that the fear of an empty month should not guide your decision any more than the fear of risk. Both are costs; the task is to weigh them against each other dispassionately. One empty month costs one month’s rent. One bad tenant can cost many.

What information can be collected about a tenant?

The landlord has the right to request information from the applicant in order to assess their suitability—but only to the extent justified by the selection process. The core principle of data protection regulation is data minimization: collect only what is necessary, and nothing more. In practice, the most important tools are a credit check, verification of income (pay stubs or equivalent), and any references from previous landlords.

A credit checkremains the landlord’s most important single tool. It requires the applicant’s consent and a legitimate need, and it’s a good idea to mention this in the rental listing. The check reveals payment delinquency records, which are only recorded once a payment default has been confirmed by a court or through debt collection—so a single late bill will not show up. Such a record isn’t automatically a red flag, but it is a reason to request a candid explanation of the applicant’s background and to consider, for example, requiring a larger security deposit.

At this point, it is important to correct a common misconception.The positive credit information registry, which will be introduced in 2024, will not be available to landlords. The registry contains detailed information about an individual’s loans and their repayment history, but for data protection reasons, access is strictly limited to lenders when granting new credit. A private landlord does not have the right to access this information when entering into a lease agreement. The landlord’s “toolkit” has therefore not changed in this regard: the traditional credit check (for payment delinquency records) is still available, and in addition, they can request to see a pay stub or a debt collection notice—though the applicant is under no obligation to provide them. (We discussed this in more detail in the article“Positive Credit Register: Why Were Landlords Left Out?”) There is a slight irony in the situation: even though an investor cannot see a tenant’s debt from the register, the bank now has a more detailed view of the investor’s own information.

What a landlord isnotallowed to collect is just as important. Sensitive information—such as health status, religious beliefs, or ethnic origin—must not be requested, and neither a personal identification number nor bank account information needs to be collected until a lease agreement is signed with the selected applicant. The selection process must also be non-discriminatory: the Non-Discrimination Act prohibits treating applicants differently based on, for example, their origin, religion, family relationships, or disability. The selection criteria may be based on the applicant’s ability to pay and reliability—not on the impression their background may give.

Five Questions You Should Always Ask

In addition to credit reports, a face-to-face meeting or video call is an underrated tool. A lease agreement is signed with a person, not a paper application. A brief conversation reveals a lot about how an applicant communicates and approaches responsibilities. The following five questions systematically provide valuable information without exceeding the limits permitted by law:

  1. Employment status and stability.Is the employment relationship permanent, fixed-term, or is the applicant’s income based on self-employment? A permanent employment relationship is the clearest indication of a stable income, but long-term self-employment or a stable public-sector position is just as good. It’s worth paying attention to a short or irregular work history—not as grounds for rejection, but as a topic for further questions.
  2. Housing history.Where has the applicant lived before, for how long, and why are they moving now? Short, consecutive tenancies may indicate problems; long tenancies that ended on good terms are a good sign.
  3. Intentions.How long do you plan to live in the apartment? No one can be held to this answer, but it opens up a discussion about the applicant’s life situation and plans—and investors value a long-term tenancy.
  4. Use of the home.Do you live alone, with a spouse, or with children? The number of occupants affects wear and tear, and clarifying this in advance can help prevent future disagreements.
  5. Approach to handling matters.How does the applicant plan to report defects or problems? There is no “right” answer, but the response reveals a lot about what the communication would be like.

No single question is decisive on its own. Their value lies in the big picture: inconsistencies between the application, credit history, and the interview are often much more revealing than any single piece of information.

A security deposit is the first layer of the safety net

Even choosing a good tenant does not eliminate the need for an appropriate security deposit. The law allows for a security deposit equivalent to a maximum of three months’ rent, and in practice, the most common amount has been one to two months’ rent. In today’s tenant market, many landlords have had to be flexible about the amount of the security deposit in order to attract good applicants—this, too, is part of the balancing act between a month of vacancy and risk.

It is advisable to keep the security deposit in a separate account or to take advantage of the rental security deposit provided by Kela when it is available to the applicant. The security deposit does not compensate for the entire loss of income resulting from a prolonged problem, but it does cover a typical short-term disruption or wear and tear that deviates from the norm.

The return of the security deposit has traditionally been one of the most common sources of dispute when a lease ends. The new Residential Lease Act provides significant clarification on this matter: going forward, the security deposit mustbe returned or notice of its withholding must be provided within 14 days ofthe termination of the lease or the return of possession of the apartment, and the notice must specify the grounds for withholding and the estimated amount. Unjustified delays may result in liability for damages. Investors should establish their own processes in accordance with this deadline.

The structure of the lease agreement is the deciding factor

Even with the best tenant, a clear, written, and comprehensive lease agreement should be signed. A verbal agreement is valid but risky. The agreement must specify, at a minimum, the parties involved, the property, the type of tenancy, the rent amount and payment method, the security deposit, maintenance responsibilities, pet and smoking policies, and the terms of termination. It’s a good idea to document the condition of the apartment with photographs at the start of the tenancy. (We went through the rental process step by step in the field guide“Renting Out an Investment Property—Effective Ways to Find a Tenant and Maintain a Good Tenancy.”)

The choice of contract type is a strategic one. An open-ended contract is flexible but requires a notice period; a fixed-term contract binds both parties and provides certainty, but lacks flexibility. For an investor seeking a long-term lease, an open-ended lease is typically the better option. The new law will also recognize an established hybrid form: a lease that is initially fixed-term and then continues as an open-ended lease. This provides leeway to combine the stability of a fixed term with the flexibility of an indefinite term.

What changes will the new rental law bring?

The Residential Lease Act, which is over 30 years old, will be reformed when the update approved by Parliament on June 2, 2026, takes effecton October 1, 2026. Some of the changes also apply to agreements entered into before the amendment takes effect, while others apply only to new agreements—for example, provisions regarding security deposits, rent increases, and the landlord’s notice period will apply only to agreements entered into after the amendment takes effect. Landlords are therefore advised to review their lease templates before October.

From an investor's perspective, the most significant changes are:

It’s tempting to think that better tools for responding to issues would make tenant selection less critical. Our view is the opposite: the law speeds up the process of addressing problems, but addressing a problem is always more expensive than preventing it. A shorter notice period won’t recover lost rent or repair a damaged apartment. New tools are a welcome safety net—but the best safety net is still ensuring that no one falls in the first place.

Summary

Selecting a tenant is the cheapest and most effective risk management tool for a real estate investor. This is done systematically by combining hard data (credit history, income verification) with human judgment (interview, housing history)—while ensuring that the selection process remains objective, well-founded, and non-discriminatory at all times. A security deposit forms the first layer of the safety net, and a carefully drafted lease agreement forms the second.

The Residential Lease Act, which will take effect in October 2026, will give landlords better tools than before to address problems, but it will not change the basic logic: choosing the right tenant at the time of selection is, and will remain, the investor’s most important single decision.

This article is a general overview and does not replace personal legal advice. Tenancy laws and data protection obligations are subject to change, and individual cases are decided on a case-by-case basis. In unclear situations, it is advisable to consult a lawyer or an expert specializing in tenancy matters.

Frequently asked questions

Can a landlord check a tenant’s credit history?Yes, with the applicant’s consent and for a valid reason. The check will reveal any records of payment defaults. It’s a good idea to mention this in the rental listing. However, landlords do not have access to the positive credit registry introduced in 2024—access to that registry is restricted to lenders.

How much of a security deposit can a landlord require?The law allows for a security deposit equivalent to no more than three months’ rent. In practice, the most common amount is one to two months’ rent, and in today’s tenant market, many landlords are willing to be flexible and lower this amount to attract good applicants.

When will the new Residential Lease Act take effect, and what changes will it bring?The Act will take effect on October 1, 2026. Key changes include a reduction in the maximum notice period for landlords from six to four months (for leases of at least two years), a 14-day deadline for returning the security deposit, clearer grounds for termination, and a new type of lease that can be extended from a fixed-term to an indefinite-term lease.

What information is it prohibited to ask a tenant for?Sensitive information, such as health status, religious beliefs, or ethnic origin, may not be collected, and the selection process must not be discriminatory. A personal identification number and bank account information do not need to be requested until a contract is signed with the selected applicant.

Is a fixed-term lease or an open-ended lease better?For an investor aiming for a long-term lease, an open-ended lease is generally the most flexible option. The new law also introduces an intermediate option, in which the lease is initially fixed-term and then continues as an open-ended lease.

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