Unlike storage water heaters, tankless units have no storage tank. They work by directly heating water on demand, as it is required. Cold water enters the unit and is heated by a heating element (heat exchanger), which is turned on by a flow-activated switch.
The heat exchanger can be electric resistance heating coils or a gas-fired burner using natural gas or propane. Gas units generally have more heating capacity and larger whole-house units are typically gas fired.
You can choose between two basic types of tankless water heaters: Point-of-use and whole house.
The point-of-use tankless water heater is small enough to fit inside a cabinet under your sink or in a closet. They are typically dedicated to providing hot water for a single purpose such as providing hot water to a sink or a shower.
Whole house units have higher gallons-per-minute (GPM) flow rate capacity and can handle demand for hot water from several sources at the same time such as your shower and your dishwasher.
Tankless water heaters installation costs are comparable to those of a tank-type units. But replacing a tank water heater in an existing home with an indoor tankless hot water heater takes a few extra steps, depending on the water heater’s location and the piping layout.
Because tankless water heaters have more powerful burners than tank water heaters, they require larger gas lines. Indoor tankless water heaters must be vented vertically through the roof or horizontally through the walls. This can make the installation costs higher for a tankless, compared with tank water heaters. But tankless have lower operating costs over time.
The higher costs related to the complexity of an indoor installation can be reduced by installing the tankless water heaters outside the home, so venting is not needed. Outdoor installation can be done in areas that have temperatures down to -30°F.