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The way most American households heat water is far from eco-friendly. Tank water heaters continuously use energy to keep stored water hot, even when not in use. And when the tank runs out, it can take a long time for it to reheat — especially after someone takes a hot shower in the dead of winter and leaves it cold for someone else.

Tankless water heaters have become an increasingly popular way for homeowners to cut down on energy use and improve heater performance, but it’s an expensive investment. Tankless water heater installation can cost $1,200 to $3,500, but will save you around $100 a year on reduced energy bills.

What is a tankless water heater?

A tankless water heater heats up cold water using gas or electricity as it flows through a tankless unit. It provides an instantaneous hot water supply on demand that lasts until you turn off the tap. As such, they take up far less space than traditional water heaters, use far less energy, and take much less time to heat up.

Types of tankless water heaters

Tankless water heaters are either gas-powered or electric-powered and may come in three different types.

• Non-condensing: These tankless water heaters use a heat exchanger to heat the water, creating a hot exhaust that must be released outside the home. That means you must install a vent, too, which adds to the installation costs.

• Condensing: These tankless water heaters have multiple heat exchangers. They’re designed to capture the exhaust from the first heat exchanger to further heat the water, making them more efficient than non-condensing ones.

• Hybrid: Hybrid tankless water heaters are a bit of a misnomer. They do actually have small tanks, but they still use far less energy than traditional water heaters. They’re more efficient than both non-condensing and condensing tankless water heaters by moving air outside the tank to the tank itself, but are more expensive, too.

What to know about tankless water heater installation

While you could certainly try to install a tankless water heater yourself, it’s not advisable unless you’ve done it before or have extensive plumbing and electrical experience.

Installation involves making leak-free water, vent, and gas connections for gas or propane units, or upgrading wiring and circuit-breaker panels for electric units. Not to mention, you’ll need to test the water, set up filters, and potentially remove an old water heater. There are likely local permits, codes, and ordinances you’d need to be aware of to complete installation, too.

Installation runs from $1,200 to $3,500, with gas models generally being more expensive to install. (Although most tankless water heaters qualify for a 10% federal tax credit, allowing you to offset some of the cost.)

Maintenance and care

After installation, you should sign up to have the installer provide annual service, including cleaning or changing water and air filters, checking the burner, and more.

You can also provide general maintenance yourself by performing a vinegar flush at least twice a year. The routine maintenance takes about twenty minutes and is essential to keep minerals from building up too much inside the water heater. (Most warranties don’t cover mineral buildup.)

Other routine things you can do to save money include cleaning the air and water filters. Your instruction manual will tell you how often to clean them, but it’s generally every four to six months. Always remember to check for leaks, rust, or any other damage. If you find significant damage, immediately.

Lifespan

With proper maintenance and care, tankless water heaters can last 20 years or more. That’s much longer than a typical storage water heater, which lasts anywhere from eight to 15 years. The longer you keep your home, the more you’re likely to reap cost benefits from a tankless water heater.

What are the pros and cons of tankless water heaters?

We’ve touched on some of the primary reasons why people get tankless water heaters, but let’s focusÌý on the pros and cons.

Pros

• Energy efficiency: Provided you use about 41 gallons of water per day, the US Department of Energy reports that tankless water heaters are 24% to 34% more energy efficient than traditional water tank heaters.

• Cost efficiency: When you use less energy, you’re spending less money! The US Department of Energy estimates that tankless water heater users compared to traditional hot water tank users.

• Size: Federal regulations now require thicker insulation on modern water heating tanks making them bigger than the past. They may not be able to fit into smaller spaces in homes. Tankless gas heaters, however, are about the size of a suitcase and may hang on the wall.

• Safety: Tankless heaters don’t spill water if they spring a leak, harbor bacteria, or fall over in the event of an earthquake. Likewise, the air supply and exhaust vents are sealed so back-drafting doesn’t release carbon monoxide into the house.

• Hot water supply: Since they operate instantaneously to demand, tankless water heaters deliver hot water indefinitely. So, you could theoretically take a hot shower for as long as you want without losing heat.

• Easy winterization: If you live in a cold climate, you know what a pain it can be to drain a water heater tank before heading away for an extended period. You can drain a tankless heater in a few seconds with a compressor, making winterization a breeze.

Cons

• Price: Gas-powered tankless water heaters cost from $170 to more than $2,000 upfront while electric heaters cost anywhere from $90 to $900. Installation costs anywhere from $1,200 to $3,500. Finally, even though you’re saving money, it’s probably only about $100 per year depending on the model and how much hot water you’re using. As such, it can be several years before you hit a break-even point.

• Sensitivity to slow flow: Tankless water heaters are very susceptible to scale buildup, clogs, or reduced water flow, leading to automatic shut offs until you fix the water pressure.

• Limited coverage: A tankless water heater can only heat a finite amount of water at a time. If you use the dishwasher, washing machine, and shower at the same time, for instance, the water temperature may fluctuate dramatically as the heater strains to provide hot water for all locations at different times. You may need a second unit or an extra large one to cover your hot water.

• Susceptible to power outages: Even gas models typically need electricity to operate. If you’re in an area prone to power outages, a tankless water heater probably isn’t a good choice.

Should I get a tankless water heater?

If you’re in an area with high energy costs or that’s prone to electric outages, a tankless water heater may not be worth the hassle. If you want hot water for a very large household, you’ll need multiple tankless water heaters, which may not be worth the price. If you’re planning on living in your home for fewer than five years, you may not reap any real cost benefits.

That said, if you use an average amount of water and expect to be in your home for the long haul, a tankless water heater is a great way to secure meaningful energy (and cost) savings over time.

Tankless water heater FAQs

Installing a tankless water heater can be a big switch for homeowners. Here are answers to some commonly asked questions about this eco-friendly home improvement:

Do you need special plumbing for a tankless water heater?

Yes, installing a tankless water heater often requires some modifications to your plumbing system. The unit may need its own dedicated gas line or upgraded electrical supply, depending on the type of heater. Additionally, the water lines and connections may need adjustments to accommodate the different water flow demands and ensure proper installation. That’s why it’s recommended to have a professional plumber assess your existing plumbing and make the necessary adjustments for a successful tankless water heater installation.

Where should a tankless water heater not be installed?

Avoid installing a tankless water heater in areas prone to freezing temperatures unless the unit is designed for outdoor use or appropriately insulated. Additionally, avoid installing it in locations with poor ventilation or limited access for maintenance, yareas or anywhere the unit's exhaust or venting could pose a safety hazard or interfere with other structures.

Is it better to install a tankless water heater inside or outside?

Installing a tankless water heater inside is generally preferred due to protection from the elements, reduced energy loss from shorter water lines, and easier access for maintenance. However, if indoor space is limited or venting is challenging, an outdoor installation can be a viable option, provided the unit is designed for outdoor use and protected against freezing temperatures. Consulting a professional plumber can help determine the best placement based on your specific circumstances.

How do I size a tankless water heater for my home?

To size a tankless water heater for your home, calculate your maximum hot water demand by estimating the number of fixtures that could run simultaneously. Determine the required flow rate in gallons per minute (GPM) for those fixtures and consider your incoming water temperature. Choose a tankless unit with a flow rate and temperature rise that matches or slightly exceeds your calculated demand for optimal performance, andconsult a professional to ensure accurate sizing.