Tankless Water Heaters: Pros, Cons, Costs, and What to Know Before Installation

Traditional water heaters store a supply of heated water in a tank and maintain that water at a set temperature until it is needed. Tankless water heaters, also called instantaneous or on-demand water heaters, take a different approach: they heat water as it flows through the unit.

When a hot-water fixture is opened, the system detects the flow and activates its heating mechanism. The water is then heated as it passes through the heat exchanger or heating elements rather than being stored in a large tank.

This design can reduce standby energy losses and save space, but tankless systems are not automatically the best choice for every home.

Their performance depends on factors such as:

• Household hot-water demand
• Number of simultaneous fixtures
• Incoming water temperature
• Required outlet temperature
• Gas or electrical availability
• Water pressure
• Existing plumbing
• Venting requirements
• Available installation space

The right decision therefore involves more than choosing a compact water heater.

It requires evaluating the home’s hot-water demand, available utilities, installation conditions, and long-term operating requirements.

What Is a Tankless Water Heater?

A tankless water heater heats domestic water only when there is a demand for hot water.

Instead of continuously maintaining a tank of heated water, the system responds when a fixture creates water flow.

A simplified process is:

Cold water enters → flow is detected → heating system activates → water passes through heat exchanger/heating elements → hot water exits

Gas-fired systems typically use a burner and heat exchanger, while electric models use electrical heating elements.

Because there is no large storage tank, tankless units can be considerably smaller than conventional storage water heaters.

How Do Tankless Water Heaters Work?

The operating process is relatively straightforward.

1. A hot-water fixture opens

When someone opens a shower, faucet, or other hot-water fixture, water begins flowing through the system.

2. The unit detects the flow

A flow sensor recognizes the demand for hot water.

3. The heating system activates

Depending on the model, a gas burner or electric heating element begins transferring heat to the water.

4. Water passes through the heat exchanger

The incoming cold water is heated as it travels through the unit.

5. Hot water is delivered

The heated water flows toward the fixture.

6. The system stops heating when demand ends

When the fixture is closed and flow stops, the heating system shuts down.

This on-demand operation is one of the primary differences between tankless and storage water heaters.

Tankless vs. Traditional Water Heaters

The fundamental difference is how hot water is produced and stored.

The most appropriate system depends on the home’s demand, available infrastructure, budget, and performance requirements.

What Are the Benefits of a Tankless Water Heater?

Tankless systems can offer several advantages.

1. Reduced Standby Energy Losses

A storage water heater continuously maintains a volume of hot water, which results in standby heat loss.

Tankless systems heat water when it is needed, eliminating the storage-tank standby losses associated with conventional tank systems.

This can improve energy efficiency, although the actual savings depend on usage patterns, system efficiency, fuel type, and operating conditions.

2. Continuous Hot-Water Production

A properly sized tankless system can continue producing hot water as long as the required flow and heating capacity are within the unit’s capabilities.

This is different from a storage tank, which can run out of stored hot water during periods of high demand.

However, “continuous hot water” does not mean unlimited flow.

The system still has a maximum flow rate and heating capacity.

3. Space Savings

Tankless units are generally much smaller than conventional storage tanks.

ENERGY STAR notes that gas tankless water heaters can free up substantial space because they are wall-mounted rather than using a large storage tank.

This can be valuable in:

• Small homes
• Apartments
• Utility closets
• Renovations
• Space-constrained mechanical rooms

4. Reduced Risk of Storage-Tank Leaks

Because tankless systems do not store a large volume of water in a conventional tank, they avoid the particular failure mode associated with a leaking or ruptured storage tank.

However, the water heater still contains plumbing connections and components that can leak, so proper installation and maintenance remain important.

5. Potentially Longer Equipment Life

ENERGY STAR states that tankless gas water heaters can have a life expectancy of around 20 years, compared with shorter expected service lives for conventional tank-type systems.

Actual service life depends on:

• Water quality
• Usage
• Maintenance
• Installation quality
• Equipment type
• Operating conditions

What Are the Disadvantages of Tankless Water Heaters?

Tankless systems also have limitations.

1. Higher Initial Installation Cost

The equipment itself may cost more than a conventional storage water heater, and installation can be more involved.

Depending on the system, installation may require:

• New gas piping
• Electrical upgrades
• Dedicated circuits
• New venting
• Condensate drainage
• Plumbing modifications
• Water-line modifications

The total project cost should therefore be evaluated rather than comparing equipment prices alone.

2. Limited Flow Capacity

A tankless water heater has a maximum heating capacity.

If several fixtures operate simultaneously, the system may not be able to maintain the desired temperature at the required flow rate.

DOE recommends sizing tankless systems based on the practical maximum flow rate needed at one time and the required temperature rise.

3. Temperature Rise Matters

Incoming water temperature varies by location and season.

If cold water enters the building at a lower temperature, the water heater has to provide a greater temperature rise.

For example, a system supplying water at a 120°F setpoint has to work harder when incoming water is 45°F than when incoming water is 60°F.

This is one reason a tankless system should be sized using actual project conditions rather than simply the number of bathrooms.

4. Minimum Flow Requirements

Some tankless systems require a minimum water flow before they activate.

Very low-flow fixtures or intermittent demand can therefore affect system operation.

The specific equipment’s activation threshold should be reviewed during selection.

5. Gas Models Require Appropriate Venting

Gas-fired tankless water heaters produce combustion gases that must be safely exhausted.

ENERGY STAR notes that gas tankless systems use dedicated venting, while condensing models can have different venting and condensate requirements.

The venting strategy needs to be compatible with:

• Equipment type
• Building configuration
• Installation location
• Manufacturer requirements
• Applicable codes

6. Electric Models Can Require Significant Electrical Capacity

Electric tankless water heaters can have high instantaneous electrical demand.

This means an electrical assessment may be necessary before installing one in an existing home.

The project should consider:

• Service size
• Voltage
• Phase
• Available capacity
• Panel capacity
• Feeder capacity
• Existing electrical loads

A home with limited electrical service may require infrastructure upgrades before an electric tankless water heater can be installed.

Gas vs. Electric Tankless Water Heaters

The choice between gas and electric depends heavily on the home’s existing infrastructure and hot-water requirements.

Gas Tankless Water Heaters

Gas units use combustion to heat the water.

Potential advantages include:

• High heating capacity
• Suitable for higher hot-water demand
• Lower electrical demand than many electric tankless systems

Potential considerations include:

• Gas availability
• Gas-line capacity
• Venting
• Combustion air
• Condensate for condensing units
• Installation location
• Maintenance

DOE describes gas tankless systems as using a high-powered burner, fan, and heat exchanger to heat water on demand.

Electric Tankless Water Heaters

Electric units use resistance heating elements.

Potential advantages include:

• No combustion
• No combustion-gas venting
• Compact installation
• Potentially simpler installation where sufficient electrical capacity already exists

Potential limitations include:

• High electrical demand
• Potential service upgrades
• Lower practical flow rates for some applications
• Electrical infrastructure requirements

The best option depends on the home’s existing utilities and hot-water demand.

How Do You Size a Tankless Water Heater?

Sizing is one of the most important parts of tankless water-heater selection.

A common mistake is to size the unit based only on the number of occupants or bathrooms.

A more useful approach considers:

Required flow rate + Required temperature rise = Heating capacity requirement

Step 1: Determine Peak Hot-Water Flow

Estimate the fixtures that may operate simultaneously.

For example:

• Shower
• Bathroom faucet
• Kitchen faucet
• Dishwasher
• Clothes washer

The goal is to estimate a realistic peak demand rather than simply adding every fixture in the house.

Step 2: Determine Incoming Water Temperature

The incoming cold-water temperature affects the amount of heating required.

Colder incoming water requires a larger temperature rise.

Step 3: Determine Desired Hot-Water Temperature

The required outlet temperature depends on the application and system design.

Step 4: Select Equipment Based on the Required Performance

The selected unit should be able to provide the required flow at the required temperature rise.

DOE specifically identifies maximum practical flow and temperature rise as the key sizing considerations for tankless systems.

Can a Tankless Water Heater Supply Multiple Showers?

It can, provided the system has sufficient heating capacity for the combined flow and temperature rise.

For example, two simultaneous showers may require significantly more hot-water flow than one shower.

The correct approach is therefore to calculate the expected simultaneous demand rather than assume that a particular model will support a certain number of bathrooms.

For high-demand homes, multiple tankless units can also be installed in a coordinated configuration where appropriate.

How Much Does a Tankless Water Heater Cost?

There is no single installation cost that applies to every project.

Total cost can include:

• Equipment
• Plumbing
• Gas piping
• Electrical work
• Venting
• Condensate drainage
• Mounting
• Controls
• Permitting
• Labor
• Removal of existing equipment

The cost can increase significantly if the existing infrastructure needs to be modified.

For example, replacing an existing gas storage water heater with a gas tankless unit may require different venting and gas-piping arrangements.

Replacing a gas water heater with an electric tankless system can create a different challenge: electrical capacity.

A realistic project budget should therefore evaluate equipment + installation + infrastructure modifications, rather than equipment price alone.

Is a Tankless Water Heater More Energy Efficient?

Tankless water heaters can be more efficient than conventional storage systems because they eliminate standby losses.

However, the actual energy savings depend on:

• Water consumption
• Draw frequency
• Draw volume
• Equipment efficiency
• Fuel type
• Incoming water temperature
• Usage patterns

DOE research has found that real-world tankless performance can vary with individual draw volume and usage patterns.

This means the most efficient system on paper is not necessarily the one that produces the greatest financial savings for every household.

Are Electric Tankless Water Heaters More Efficient Than Gas Tankless Models?

Efficiency comparisons need to distinguish between equipment efficiency and overall operating cost.

Electric resistance tankless heaters can convert electricity to heat very efficiently at the point of use, but electricity and gas have different energy costs and infrastructure implications.

The better comparison should consider:

• Utility rates
• Equipment efficiency
• Annual hot-water demand
• Installation cost
• Electrical requirements
• Gas availability
• Maintenance
• Expected service life

For some projects, a heat pump water heater may also be worth evaluating.

DOE notes that heat pump water heaters use electricity to move heat rather than generate it directly and can be significantly more efficient than conventional electric resistance water heaters.

Tankless vs. Heat Pump Water Heaters

These systems are sometimes compared because both can improve hot-water efficiency, but they operate differently.

Tankless

• Heats water on demand
• Usually no storage tank
• Available in gas and electric configurations
• Compact
• Can provide continuous hot water within capacity limits

Heat Pump Water Heater

• Uses a heat pump to transfer heat into stored water
• Requires a storage tank
• Uses electricity
• Can achieve substantially higher efficiency than conventional electric resistance systems
• Requires appropriate installation conditions

DOE’s Building Science Education guidance states that heat pump water heaters can be two to three times more efficient than conventional electric water heaters.

The best technology depends on the building, climate, utility costs, space, and hot-water demand.

What Plumbing Requirements Does a Tankless Water Heater Have?

A tankless system needs appropriate water connections and flow.

The plumbing design should consider:

• Cold-water inlet
• Hot-water outlet
• Pipe sizing
• Flow rate
• Pressure
• Isolation valves
• Service access
• Expansion-control requirements where applicable
• Temperature and pressure protection
• Drainage
• Water quality

DOE guidance also notes that the existing cold-water supply line should be evaluated before a tankless retrofit because the required flow rate can affect the required line size.

What Are the Installation Requirements for a Gas Tankless Water Heater?

Gas installations require additional considerations.

These can include:

• Gas supply
• Gas-pipe sizing
• Combustion air
• Venting
• Exhaust termination
• Condensate drainage for condensing units
• Clearances
• Service access
• Applicable plumbing and mechanical requirements

The equipment manufacturer’s installation requirements must also be followed.

For cold climates, DOE specifically notes that venting configuration and intake/exhaust placement require attention to conditions such as snow and frost.

What Electrical Requirements Does an Electric Tankless Water Heater Have?

Electric tankless systems can require substantial electrical power.

The assessment should consider:

• Voltage
• Amperage
• Number of circuits
• Panel capacity
• Main service capacity
• Existing electrical loads
• Feeder capacity

This can make electric tankless systems challenging in older homes with limited electrical service.

A professional electrical evaluation can determine whether the existing infrastructure is adequate.

Does Water Quality Affect Tankless Water Heater Performance?

Yes.

Mineral deposits and scale can affect heat-transfer surfaces and system performance.

This can be particularly relevant in areas with harder water.

Depending on the equipment and water conditions, maintenance may include:

• Descaling
• Filter maintenance
• Inspection
• Flushing
• Manufacturer-recommended servicing

The appropriate maintenance schedule depends on the equipment and water quality.

Does a Tankless Water Heater Need Maintenance?

Yes.

Although tankless systems do not have a conventional storage tank, they still contain components that require maintenance.

Potential maintenance can include:

• Descaling
• Filter cleaning
• Burner inspection
• Heat-exchanger maintenance
• Vent inspection
• Condensate-system inspection
• Electrical-component inspection

The manufacturer’s maintenance recommendations should be followed.

Common Tankless Water Heater Installation Mistakes

Choosing a Unit Based Only on Bathroom Count

The correct sizing approach considers flow rate and temperature rise.

Ignoring Simultaneous Demand

Multiple fixtures can operate at the same time.

Reusing Existing Gas Venting Without Verification

Tankless equipment can have different venting requirements from conventional storage equipment.

Ignoring Electrical Capacity

Electric tankless systems can create substantial electrical demand.

Choosing Equipment Before Checking Infrastructure

The building’s gas, electrical, plumbing, and ventilation conditions should be evaluated before final equipment selection.

Ignoring Water Quality

Scale can affect system performance and maintenance requirements.

Assuming Tankless Means Unlimited Hot Water

The system has a maximum flow and heating capacity.

Focusing Only on Equipment Price

Installation and infrastructure modifications can materially affect total project cost.

When Is a Tankless Water Heater a Good Choice?

Tankless systems may be worth considering when:

• Space is limited
• Hot-water demand is relatively predictable
• Continuous hot-water availability is important
• The building has suitable gas or electrical infrastructure
• The owner wants to reduce standby losses
• A long-term equipment strategy is being considered
• The existing water heater needs replacement

They may be less attractive when:

• Electrical capacity is limited
• Gas service or venting is difficult
• Very high simultaneous demand exists
• Installation modifications are expensive
• The project has limited upfront budget
• A heat pump water heater would provide better overall economics

The correct decision depends on the specific property.

When Should You Choose a Traditional Storage Water Heater Instead?

A storage water heater can still be the better choice for some applications.

Potential advantages include:

• Lower initial equipment cost
• Familiar installation
• Stored hot-water capacity
• Simpler replacement in some existing homes
• Compatibility with existing infrastructure

For properties with moderate demand and suitable space, the simplicity of a storage system may outweigh the advantages of going tankless.

How an Engineer Can Help Select a Hot-Water System

Water-heating decisions are not simply product-selection decisions.

The system interacts with the building’s:

• Plumbing
• Electrical system
• Gas system
• Mechanical systems
• Energy performance
• Available space

An engineer can help evaluate:

• Hot-water demand
• Peak flow
• Temperature rise
• Equipment capacity
• Utility availability
• Existing infrastructure
• Installation constraints
• Energy performance
• Code requirements

This is especially useful for renovation projects where the existing building may have limitations.

A Practical Process for Choosing a Tankless Water Heater

Step 1: Determine Hot-Water Demand

Identify the fixtures and appliances that may operate simultaneously.

Step 2: Calculate Peak Flow

Estimate the required gallons-per-minute flow.

Step 3: Determine Temperature Rise

Evaluate incoming cold-water temperature and desired hot-water temperature.

Step 4: Review Existing Utilities

Check:

• Gas
• Electricity
• Plumbing
• Venting

Step 5: Compare Technologies

Evaluate tankless gas, tankless electric, storage, and heat pump water-heating options where appropriate.

Step 6: Select Equipment

Choose equipment based on actual performance requirements.

Step 7: Evaluate Installation Requirements

Confirm:

• Space
• Venting
• Electrical capacity
• Gas capacity
• Plumbing
• Drainage
• Service access

Step 8: Estimate Total Project Cost

Include equipment and infrastructure modifications.

Step 9: Compare Lifecycle Economics

Evaluate energy use, maintenance, expected life, and operating costs.

Step 10: Complete Installation and Commissioning

Verify that the system is installed, adjusted, and operating according to the design and manufacturer’s requirements.

Is Instant Hot Water Right for Your Home?

Tankless water heaters can be an effective alternative to conventional storage systems, particularly when space savings, on-demand operation, and reduced standby losses are important.

But they are not automatically the most efficient or economical choice for every property.

The right system depends on how much hot water the building needs, how quickly it needs it, what utilities are available, and what infrastructure is already in place.

A proper evaluation can prevent common problems such as undersizing, inadequate electrical capacity, insufficient gas supply, poor venting, or unexpected installation costs.

For more complex residential, multifamily, or building-system projects, Daymark Engineers can provide engineering support for plumbing, mechanical, electrical, energy, and coordinated building-system requirements.

Planning a hot-water system upgrade or evaluating a tankless water heater for a renovation project? Contact Daymark Engineers to discuss the project’s engineering requirements.

Frequently Asked Questions About Tankless Water Heaters

What Is a Tankless Water Heater?

A tankless water heater heats water as it flows through the unit rather than storing a large volume of hot water in a tank. It is also commonly called an instantaneous or on-demand water heater.

Are Tankless Water Heaters More Efficient Than Traditional Water Heaters?

They can be because they eliminate the standby losses associated with storing hot water. Actual energy savings depend on usage patterns, equipment efficiency, fuel type, and operating conditions.

Do Tankless Water Heaters Provide Unlimited Hot Water?

Not exactly. They can provide continuous hot water while operating within their rated flow and heating capacity. If demand exceeds that capacity, outlet temperature or flow can be affected.

How Do You Size a Tankless Water Heater?

Sizing should consider the maximum practical simultaneous hot-water flow and the required temperature rise. DOE specifically identifies these factors as key considerations in tankless water-heater sizing.

Are Gas or Electric Tankless Water Heaters Better?

Neither is universally better. Gas models can provide high heating capacity but require appropriate gas supply and venting. Electric models avoid combustion and venting but can require substantial electrical capacity.

Do Tankless Water Heaters Save Money?

They can reduce energy use and operating costs in some applications, but the savings depend on usage, energy prices, equipment efficiency, and installation cost. The financial comparison should include the complete lifecycle cost.

Are Tankless Water Heaters Expensive to Install?

They can have higher installation costs than conventional storage water heaters, particularly when gas piping, venting, electrical service, plumbing, or other infrastructure needs modification.

Can a Tankless Water Heater Supply Two Showers at Once?

It can if the selected unit has sufficient capacity for the combined flow and required temperature rise. The system should be sized based on expected simultaneous demand rather than simply the number of bathrooms.

Do Electric Tankless Water Heaters Use a Lot of Electricity?

They can require high instantaneous electrical power because they heat water directly as it flows. The home’s electrical service and panel capacity should be evaluated before installation.

Do Gas Tankless Water Heaters Need Venting?

Yes. Gas combustion produces exhaust that must be safely vented. The exact venting arrangement depends on the equipment and installation conditions.

Do Tankless Water Heaters Need Maintenance?

Yes. Depending on the system and water conditions, maintenance may include descaling, filter cleaning, burner or heat-exchanger inspection, and vent or condensate-system checks.

How Long Does a Tankless Water Heater Last?

Service life varies by equipment, water quality, maintenance, and operating conditions. ENERGY STAR indicates that gas tankless systems can have a life expectancy of around 20 years.

Is a Tankless Water Heater Better Than a Heat Pump Water Heater?

Not necessarily. They use different technologies. A heat pump water heater stores hot water but can achieve substantially higher efficiency than conventional electric resistance systems. The best choice depends on the property’s demand, space, utilities, and operating goals.

Can a Tankless Water Heater Be Installed in an Existing Home?

Yes, but the existing plumbing, electrical or gas service, venting, space, and water conditions should be evaluated before installation.

Does a Tankless Water Heater Require a Larger Water Pipe?

Potentially. The required water flow can affect the size of the cold-water supply line. DOE recommends evaluating the existing supply line during tankless retrofits.

Should an Engineer Be Involved in a Tankless Water Heater Installation?

For a straightforward replacement, professional engineering may not always be necessary. However, engineering evaluation can be valuable when the project involves significant plumbing, electrical, gas, HVAC, building, or energy-system modifications.