I agree with Username26. I live in a region with cold winters and the amount of energy it would take to keep the water in the heater tank liquid would make my utility bills skyrocket.

It makes a lot of sense in California where it doesn't get too cold. Also if it bursts or leaks there is minimal damage to the house.

Why would you heat hot water?

@comicgeek - make that PARTS of California. Was discussing this with husband just the other day. Where we used to live (Tahoe area) water heater and washer/dryer have to be IN the house.

And ditto to IMMAMAHAWK - that's always been a peeve of mine.

This is Standard Operating Procedure here in SoCal. Most houses and many apartments built before the 40's have outside water heaters, all in a metal closet. When I first moved here I was taken a back at the sight and questioned why? After awhile, the sight blended in with the expected things seen outside a house, patio furniture, electrical box, water softeners. Writing this it struck me that almost everything in Southern California is outside. People too.

Good one IMMAMAHAWK!

this kind of thinking is all wrong! You should be using On Demand hot water heaters. Why have a hot water heater running all day just in case you might need hot water? That's like keeping your car running in the driveway in case you might need to run to the store for milk!

Hmmm, does not make sense in a scenario with roaming zombies. Attracts unnecessary attention and is ripe for the draining by looters. NAY! I shall keep my water heater in my garage.

I put in a tankless/on-demand heater a year ago when my tank bit the dust. It was nominally more expensive to buy and install. I don't have a single complaint! My gas bill is significantly lower, we're never out of hot water, we haven't experienced any supply/pressure problems (four adults, two apartments, two full bathrooms, two full kitchens, two laundry rooms). I wish I'd done it years ago.

This page has a chart showing expected flow rates at various temperature differentials - it's a great resource to help you choose a heater with the right capacity. It's the comparison that's important here, not the models.
http://www.e-tankless.com/choose_heater.php

I agree it doesn't make sense in Canada or colder areas. But then again, why bother with a hot water tank when you can get a on demand hot water heater that (depending how much water you need) fit over the wasted space over the toilet or under the kitchen sink!

@chartreuse, you make a good point, but ... paying $800 for the new unit and another god-knows-how-much to have a tankless installed isn't in my cards right now. (kindly refrain from a condescending attitude about stuff like that, m'kay?)

my hot water heater is outside in a small metal shed, which is de rigueur for older houses in new orleans. i'd LOVE to get it inside, but that probably won't happen anytime soon.

Switch to a tankless water heater and the space won't be an issue. My tankless takes up less space than a desktop computer. Plus, it is better for the environment.

We wanted to go tankless when we built our new house, but the cost factor was prohibitive. I don't know where you guys see $800 tankless whole-house unites, but the ones we priced were more like $4000. An upgrade for someday. We went with the under $500 gas standard heater for now.

(And in New England, putting it outside would just be ridiculous!)

The water heater at my duplex is outside. But in Phoenix, why not? I don't even use any energy (probably) to heat it in the summer. Water comes out of the cold tap scalding hot.

In Australia this is the norm. I have never lived in a house with the hot water inside. I suppose that is another great thing about living somewhere where it's sunny and warm year-round.

Also consider the tankless units need a whole lot of BTUs. The ones we were looking at were around 200,000 BTUs, and with a low pressure main in my neighborhood I was limited to 300,000 total BTUs or so in general. We did have the option of running a new gas line from the main line instead of tapping off the existing line in the house but it would have cost oh about $10,000 to do it (other side of the street, traffic control requirements, busting up the street, repairing the street, 140 foot run with a driveway to deal with, etc.). So unfortunately going tankless was out of the question. I would have *loved to go tankless.

Sadly my hot water heater went out about 2 years after I bought my house and it was located in a space not to code ( behind the stackable washer/dryer). The only thing I could do was get a tankless. For a small outdoor Rinai I spent $3000 on the heater and the install. Pricey and not really worth it, but I had to do it. I keep telling myself I'm saving the world by using less gas to heat it:)

Yeah...a major pet peeve of my too...no need to heat hot water *chuckle*

@moke076: If you keep your current home for any length of time, I think your opinion on the Rinnai might change. Pricey perhaps...but there is considerable savings realized over time which offsets the cost. Granted a tankless is defnitely an *investment* (roughly 3x the cost of a 50 gal natural gas wh - $800 vs $2500 in this neck o' the woods) and not an option for some of us.

For the rest of you, keep an eye on the tankless heaters before you rule them out. Prices decrease as demands increase and technology is continuously progressing.

@USERNAME26 I do live in the South. Deep south. My husband and I moved into a new house a year ago. At our old house the water heater was indoors in the laundry room. In our new house the tank is in the garage. Our gas bill more than tripled in the colder months, and we had an incredibly mild winter in Alabama. Moving the tank outdoors would be a BIG "no" even here.

My house is under 600 sf and all electric. When it was renovated, I switched from a small (horrible) hot water heater under the stairs on the first floor, to a tankless unit on the second floor. Yes, the initial cost was quite high, but it has been totally worth it to me. First, getting all the space back downstairs has made a big difference for storage, plus it is awesome to never have to worry about running out of hot water, which the old unit did all the time. I have great water pressure because all my plumbing is basically up and down and although the tankless one does require a bigger hit of electricity when its heating, since it only does it when needed, my electric bill is actually a lot lower. I was lucky that due to a quirk in my house's architecture the room with the highest ceiling is the bathroom, because it meant I could install the tankless heater above the washer/dryer in what would have otherwise been dead space, but I don't have to look at it.

I also have to say in my experience, there is very little lag between turning on the hot water and having it come out the faucet. Less in fact than with my own horrible unit. This might just be because there is very little distance between the tank and any of the faucets in my house due to the small size, but I was prepared to have to wait for hot water and that hasn't been the case even in the depth of winter.

I should also say that the renovation (a total gut job due to the nightmare condition the house was in) also involved completely redoing the electrical wiring which made it possible to even think about going tankless. We knew that's what we wanted so we were able to plan the electrical infrastructure of the house in the way that we knew would support the requirements of the tankless heater without blowing out the circuit whenever it was used. So far, no problems!

It's sort of "outside." Water heater in house 1, SF Bay Area, is in a corner of the garage closest to the garage door. The heater is from 2008, works great. Closeted water heater in house 2, LA area, is in the basement where the major water piping is.

this is funny to me as this is pretty much the only way water heaters are in australia.. I've never seen different... so usually they are inside the house? (obviously in cold areas)

Personally I would be fine with it. We have a 3 story home (its a very odd skinny layout) with the attic located on the 3rd story above our office and kids room. I fear the water heater breaking. Would much rather if there was an issue, it occur in our yard.

I'd def consider a tankless for this reason alone when we replace ours.

Agreeing that this is the norm in Australia, which horrifies me here in Canberra where the temperatures get well below freezing in winter. I looked into replacing our (gas) water heater with an on-demand one, but that would work out significantly more expensively for us. Our heater only holds enough water for two five minute showers (even with our water-saving head), which is still well above the recommended shower length in this country of water shortages. But if we had on-demand, I am very sure we would find it impossible to restrict ourselves to such short showers, especially in winter.

Also, consumer reports suggest that they may not be cost-effective even if you don't take into account possible increased water usage http://www.consumerreports.org/cro/appliances/heating-cooling-and-air/water-heaters/tankless-water-heaters/overview/tankless-water-heaters-ov.htm