Quick answer
Choose a storage tank heater if you want the lowest upfront cost and straightforward installation. Choose a tankless (on-demand) heater if you plan to stay put for years, have the budget for upgrades (gas line, venting, or electrical), and want lower energy use and endless hot water. The best choice depends on your fuel type, household hot water demand, installation constraints, and maintenance comfort.
Energy use and cost basics
- Tank heaters (gas or electric): Heat and store 30–80 gallons. They have standby losses (keeping water hot 24/7). Modern models have UEF around 0.60–0.70 for non-condensing gas and 0.90+ for electric. Upfront cost is lower; operating cost is higher.
- Tankless heaters (gas or electric): Heat water only when you open a tap. UEF typically 0.82–0.96 (non-condensing vs condensing gas). They reduce standby losses and often cut gas use by 10–30% versus a standard tank, depending on usage.
- Heat pump water heaters (electric tanks): If you have space and a mild-to-warm area, these can be the lowest operating cost with UEF 3.0+, but higher upfront cost. Worth a look if you are considering electric.
Typical costs (equipment + installation; varies by region):
- Standard gas tank: 40–50 gal $1,200–$2,500 installed
- High-efficiency/condensing gas tank: $2,500–$4,500
- Electric tank: $1,000–$2,000
- Gas tankless (non-condensing): $2,000–$3,500
- Gas tankless (condensing): $3,000–$5,500
- Electric tankless: $800–$1,800 equipment, but may need major electrical upgrades (see below)
Potential extras for tankless:
- Gas line upsizing to 3/4 in or larger: $300–$1,200
- Stainless or PVC venting and roof/wall work: $300–$800
- Condensate drain and neutralizer (condensing units): $150–$400
- New 240 V circuit for electric tankless: $400–$1,200 (panel upgrade can add $1,000–$3,000)
Lifespan and maintenance:
- Tank: 10–15 years; flush sediment annually; replace anode rod every 3–5 years to extend life.
- Tankless: 15–20+ years; flush/descale 1–2 times per year in hard water areas; clean inlet screens.
Step-by-step: decide what fits your home
1) Check fuel and rates
- If you have affordable natural gas, both tank and tankless are viable. Propane users often see higher fuel costs; tankless can help offset that with efficiency.
- Electric-only homes: compare an electric tank vs a heat pump water heater. Electric tankless often needs very large breakers (3× 40–60 A), which many panels cannot support.
2) Estimate peak hot water demand
- Count fixtures you use at the same time (morning showers + dishwasher, etc.).
- Typical flow rates: shower 1.8–2.5 gpm, sink 0.5–1.5 gpm, dishwasher 1–2 gpm.
3) Size a tankless correctly
- Match flow to temperature rise. Example:
Incoming water: 45°F
Target hot water at tap: 120°F
Temperature rise: 75°F
Peak flow: two 2.0 gpm showers = 4.0 gpm
Look for a unit that delivers ≥4.0 gpm at 75°F rise (often 150k–199k BTU models).
- Undersizing causes lukewarm water and dropouts.
4) Assess installation changes
- Existing tank location with vent and gas line sized for ~40k–50k BTU? A tankless might need 150k–199k BTU and new venting.
- Electric service: Electric tankless can require 120–180 A of dedicated capacity; many 100–150 A panels cannot handle this.
5) Budget and payback
- If you’ll move in 3–5 years or use modest hot water, a standard tank often makes the most financial sense.
- Heavy-use households or long-term owners see better payback with tankless, especially on gas.
6) Maintenance preference
- Comfortable flushing/descaling annually? Tankless is fine. Prefer set-and-forget? A tank may fit better.
7) Water quality
- Hard water accelerates scale in tankless units. Plan for a softener or more frequent descaling.
Tools and materials (DIY-friendly installs)
- Adjustable wrenches, pipe wrenches
- Tubing cutter (copper) or PEX cutter; PEX crimper or press tool if using those systems
- Propane torch and solder kit (for copper), or push-to-connect fittings rated for water heater use
- Pipe thread sealant (for NPT threads) and PTFE tape; do not use on flare fittings
- Dielectric unions, shutoff valves, flex connectors rated for water heaters
- Drip pan and drain line, seismic straps where required
- For tank: expansion tank (closed systems), T&P valve discharge piping
- For tankless: isolation valve kit with service ports, condensate kit (condensing), vent kit
- Leak detector solution or electronic gas sniffer, multimeter (for electric)
Safety and code considerations
- Pull permits where required and follow manufacturer clearance/venting specs.
- Gas: Verify proper line size, leak test all joints, and ensure approved venting materials. Install carbon monoxide detectors nearby.
- Electric: De-energize at the breaker; confirm voltage, wire gauge, and breaker size. Bond and ground correctly.
- T&P relief valve: Always pipe to an approved drain. Never cap it.
- Use a drain pan under heaters in or above living spaces to prevent water damage.
Tips for best results
- Mixing valve on tanks: Set tank to 130–140°F with an anti-scald mixing valve at 120°F to boost delivered capacity without running out as quickly.
- Recirculation options: For long pipe runs, a recirc pump with timer or demand control reduces wait time. Some tankless units support internal or external recirc.
- Annual service: Flush tanks to remove sediment; descale tankless units with a pump, hoses, and vinegar or manufacturer-recommended solution.
- Leak protection: Add a water-leak sensor or auto-shutoff valve.
Common mistakes to avoid
- Undersizing tankless by ignoring winter inlet water temps or simultaneous fixture use.
- Skipping gas line/vent upgrades and causing poor performance or safety issues.
- Choosing electric tankless without confirming panel capacity and wire size.
- No expansion tank on a closed plumbing system with a tank heater.
- Wrong sealants: PTFE tape or dope on flare fittings can cause leaks; use only on NPT threads.
When to call a pro
- You need to upsize or relocate a gas line, core a wall/roof for venting, or convert to condensing with condensate drain/neutralizer.
- Your electrical panel needs a new 240 V circuit or an upgrade.
- You’re moving the heater to a new location, adding recirculation lines, or must meet strict seismic/venting codes.
- You’re unsure how to size for temperature rise and altitude (affects tankless output).
Bottom line
- Tight budget, simple install, average use: Go with a standard tank (or heat pump tank if electric and you want lower bills).
- Long-term, heavy use, room for upgrades: Gas tankless often wins on energy and convenience, provided it’s sized and installed correctly.