How to choose good tenants

Choosing the right tenants for your rental property is essential - for both peace of mind and protecting your investment. 

When you think about what makes a good tenant, you probably imagine someone who pays rent on time and in full, looks after the property as if it were their own, acts responsibly, is a considerate neighbour, and communicates promptly if any issues arise. 

And you would be right. A good tenant can make owning and managing an investment property a smooth, rewarding experience. 

Choose the wrong tenant, however, and that dream can quickly turn into a nightmare. We have all heard the stories (and you may have even seen a few of ours) about tenancies that went very wrong. 

While landlord insurance can help protect policyholders from the financial impact of problematic tenancies, avoiding these situations in the first place is always preferable. 

This guide is designed to help landlords and property managers identify and select tenants who are more likely to be responsible, reliable, and respectful, keeping your property safe and your investment secure.

Application checks

Knowing who your tenants are and whether they are suitable requires careful investigation. Key steps include: 

• Use a consistent rental application form for all prospective tenants (each adult on the lease). Follow your state/territory requirements if a standard form exists. 

• Respect legal limits: Only request information allowed under residential tenancy laws. Avoid discriminatory or overly invasive questions (e.g. about sex, age, race, religion, health, or credit history). 

• Scrutinise the application: Verify details, sight and copy IDs (driver’s licence, passport, birth certificate), and request utility bills in the tenant’s name. 

• Consider property-specific requirements: Ask about pets, smoking, or other tenancy restrictions, while remaining compliant with the law. 

• Meet prospective tenants in person to gauge fit and suitability. 

• Follow rules for option fees if applicable in your jurisdiction, including accepting and returning fees correctly. 

• Safely handle personal data: Store and dispose of private information according to legislation. 

Reference checks 

Leasing your property to a stranger requires due diligence. Gathering insights from previous landlords, employers, and personal references can help you assess a tenant’s reliability. 

Tenancy history: 

• Check tenancy databases if permitted and advise the applicant. 

• Contact previous landlords/PMs and ask about: length of tenancy, occupants, rent payment history, honesty about difficulties, property care, adherence to rules, disputes with neighbours, bond return, and whether they would rent to them again. 

• If no rental history exists, consider additional references. 

• If there is a past issue (e.g. eviction, late payments), discuss it with the tenant. 

Employment verification: 

• Confirm current (or previous) employment, role, tenure, employment type, salary, and reliability. 

• For self-employed applicants, verify the business (ABN) and request income evidence. 

Personal references: 

• Ask contacts about their relationship to the applicant, how long they have known them, and insights into character and reliability. 

Financial checks 

Ensuring a prospective tenant can afford the rent is essential. While unforeseen circumstances can affect even the best tenants (job loss, illness, etc.), applicants whose finances make rent a struggle under normal conditions may not be suitable. 

Key considerations: 

• Follow legislation regarding financial checks. 

• Confirm employment, salary, and other income sources (self-employed applicants may provide accountant letters or bank statements). 

• Request proof of income (e.g. three months’ payslips or bank statements). 

• Ask about bankruptcies, outstanding debts, or legal judgments. 

• Review previous rental payment history via deposit ledgers. 

• Consider credit checks (with tenant permission and following regulations). 

• Only collect the minimum information needed. 

• Household income should comfortably cover rent plus living expenses. If rent exceeds ~30% of net income, there is increased risk of rental stress and missed payments. 

Red flags    

Watch for signs that a prospective tenant may be risky: 

• Listed on tenancy databases or has a history of evictions. 

• Referees are hard to reach or unresponsive. 

• Previous landlords report late or missed rent, disputes, property damage, or neglect. 

• Thin or unstable employment and income history. 

• Negative feedback on character, reliability, or honesty. 

• Gaps in rental history or frequent moves. 

• Reluctance to provide proof of income or independent references. 

• Attempts to negotiate bond or delay payment; bond must comply with legislation and EBM RentCover requirements. 

• Poor communication, vague, or contradictory referee responses. 

• Offers to pre-pay rent in cash (possible indicator of illegal activity). 

There are no guarantees in life or rental properties, but selecting the right tenant can go a long way to reducing the risk of suffering losses at the hands of bad renters.  

We do not say this out of self-interest but because we would much rather not have our clients and property industry partners having to deal with things going wrong at the rental (we know how distressing and confidence-rattling it can be). 

Of course, we will be there to help should you need to claim, and we aim to reduce the stress associated with the process and provide the smoothest claims experience possible.  

If you need to make a claim on an EBM RentCover policy, please reach out to our Specialist Claims team – 1800 661 662.