Pros and cons of a tankless water heater

Tackle a tricky decision with these tankless water heater tips.

Key tips to remember

  • Tankless water heaters can provide unlimited hot water
  • Tankless water heaters cost significantly more upfront
  • Tankless water heaters operate more efficiently than traditional models
  • Initial tankless water heater costs can be made up over time
  • Tankless water heaters use much less space and can last twice as long

How does a tankless water heater work? We’ll tell you all about it, as well as everything you need to know about tankless water heater maintenance. Before you search online for “tankless water heater vs. tank” or something similar, read this post to learn all we have to share about the pros and cons of a tankless water heater and absorb all our related water heater tips. You’ll be well on your way toward making an important decision for your home and your wallet. 

Basic functionality and efficiency

The main difference between a tankless water heater and one with a tank is that a tankless water heater works on demand. This means that while a traditional water heater with a tank must keep heating and reheating water almost constantly, a tankless water heater only heats up water when you turn on a faucet or an appliance that requires hot water. This means that a tankless model is a lot more efficient. Even though it requires more energy to heat water instantaneously, the total energy a tanked heater requires to keep all that water constantly heated far exceeds the energy a tankless model requires to heat water on demand. However, making the right decision on the right water heater for your home still requires many considerations.

Initial cost considerations

Though you may spend an average of around $2,500 to purchase and install a new tankless water heater, the price you will pay can vary according to make, model, system size, fuel type and flow rate. It also depends on specific installation costs involved, like permits, accessibility alterations, materials and labor required for your property and charged by your vendor of choice, plus any charges for removal of your old system, which you should be sure to mention upfront. However, you may also experience hundreds of dollars in annual savings as well as even more significant savings over the long term because a gas-powered tankless water heater is over 20% more efficient than a traditional model with a tank.

Accessibility, removal and safety

If your old unit is wedged into a tight spot and hard to get to, expect to pay more to have it removed. A tankless water heater takes up a lot less room than a traditional tank. However homes that need a water softener as well can negate that extra space savings by filling up your utility room with more equipment and bags of salt. Exact charges vary according to the specifics of your situation and how much the contractor charges, so be sure to get at least three estimates. Budgeting at least $500 for the removal is a safe bet. 

Speaking of safety, another good reason for considering a switch to a tankless water heater is to eliminate of the risk of water damage due to a leaking or damaged tank. Tankless heaters are not vulnerable to tipping over or puncture, they’re far less likely to grow bacteria, , and they lack the risk of carbon monoxide exhaust buildup within the home thanks to their sealed ventilation systems that exhaust outdoors. One thing to remember, however, is that tankless heaters typically cannot function when the power is out.

System configuration

When considering switching to a tankless water heater, it’s also important to understand that they’re not a one-size-fits-all appliance. You should try and get an idea of how much hot water is normally used throughout your home so you’ll have a better idea of your needs and how a particular size or configuration might suit them. 

Not only are there different sizes of systems for different sizes of homes, but there are also two main configurations, known as point-of-use (aka single-point) or whole-house systems. Homes with point-of-use/single-point systems often contain many bathrooms and appliances requiring hot water. These smaller units are a quicker, easier installation job and can be located inside or outside the home, typically within a short distance of the faucets or appliances they serve. In contrast, a more expensive whole-house system serves the whole house and is located in a central location, often inside a utility room with gas ventilation. Even without the targeted units in proximity, a whole-house unit can provide simultaneous hot water throughout a house, delivering up to 10 gallons of hot water per minute. 

However, some larger houses may require multiple whole-house units if many people run showers, laundry and dishwashers simultaneously, although some homeowners elect to augment a whole-house unit with single units for targeted areas. Now that we’ve provided an overview, let’s look at pros and cons.

Tax credits vs. installation expenses

Though the primary federal tax credits for installing more-efficient tankless water heaters applied for several years, they expired at the end of 2021. However, they may be renewed, and some regions, states and municipalities offer other rebates, credits and discounts. It’s worth the effort to explore local policies and procedures to track down the discount possibilities where you live. 

Due to the potential for extra work involved in installing a tankless water heater, they’re typically more expensive to install. The process often includes removing large, awkward and heavy equipment, such as your old tank. It could also involve drilling holes through walls, rerouting gas lines, installing ventilation and repairing related damages, which could include carpentry, drywall, plumbing and painting, potentially adding hundreds or more to your total installation cost. Parts required involve kits, fittings, connectors, valves and mounting hardware. You may need to purchase a permit, and possibly require insulation and electrical modifications. Whether or not you are able to obtain tax credits, rebates or other installation reimbursements, you should count on significant installation expenses.

Electric gas vs. solar and oil

Fuel sources for tankless water heaters can range from electricity, natural gas and oil to propane and even solar power, which may be the cheapest to use but the most expensive to install, costing as much as $15,000. While some don’t mind mixing and matching combinations, it’s convenient for many homeowners to match the fuel source with the one already providing heat for the home. Tankless water heaters use flow rates to determine whether they meet the gallons-per-minute (GPM) demand required as opposed to telling you how many gallons they contain and provide like a traditional water heater indicates on the label. Determining your household’s GPM is as easy as adding up the combined hot-water demand of whatever faucets and appliances you expect to run simultaneously.

Increased lifespan vs. increased price

Most traditional water heaters can last at least a decade, while a tankless model can last twice as long. Unfortunately, it can also cost at least twice as much to purchase and install. However, keep in mind that the more than 20% increase in efficiency will make your new tankless water heater cheaper to operate over time. Still, a lengthier lifespan means a longer warranty period, and tankless heaters also require annual maintenance.

Hot water on demand vs. inconsistency

Instantaneous access to hot water can be easy to get used to after all the existing cold water has been flushed from your system following the installation of the new tankless water heater, but some users complain of inconsistency for a couple of reasons. The first is that some tankless water heaters have trouble engaging when a tap is barely on. If you’re accustomed to using a trickle of hot water — when shaving, for example — this might bother you. Also, if you’re a part of a busy household that always has multiple showers, loads of clothing and dishwashers running, you might experience some inconsistencies or limitations to your hot-water distribution because a tankless system works best when showers are not taken simultaneously. No system is perfect, and high-demand situations like this can impact performance. Traditional tanked water heaters typically store so much hot water that these limitations rarely arise.

Increased efficiency vs. lengthy payoff

Heating and reheating water wastes plenty of energy, hence the more than 20% efficiency-improvement benefit you get by swapping your tank for a tankless. After the upgrade, you should see a consistent improvement in monthly expenditures, but it may take close to a decade or longer before you start realizing the financial benefits of making the change. In short, unless you have a huge demand for simultaneous hot water all over the home and can’t find a way to stagger your schedules to make this easier on your water heater, you are likely to save money, space and energy efficiency by switching to a tankless water heater.

Thanks for reading our post on tankless water heaters. While you’re here, you may want to read more of our posts on home improvement and maintenance topics, like whether a home warranty covers water heaters, more on how to maintain a water heater, or even our guide to home plumbing. If you’d like to dig a little deeper, check out our homeowners’ guide to bathrooms. These are but a few of our extensive collection of helpful posts. Feel free to browse and read whatever interests you while you’re here. We hope you find our content both entertaining and informative.

The information in this article is intended to provide guidance on the proper maintenance and care of systems and appliances in the home. Not all of the topics mentioned are covered by our home warranty or maintenance plans. Please review your home warranty contract carefully to understand your coverage.

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