Tankless water heaters, also known as demand water heaters, are fairly common in new houses and remodeling projects because they offer benefits such as energy and space savings, durability and endless hot water.

NATALIE CAUDILL/DMN

A tankless water heater has energy- and space-saving benefits.

"We have installed tankless water heaters since 1995. Our tests show they are an excellent product," says Steve Brown, president of Carl Franklin Homes. Mr. Brown says the Dallas company rarely installs traditional water heaters in new houses. He also says adding tankless heaters to older homes is becoming more common.

Tankless heaters use either electricity or natural gas to heat water quickly as it is needed, Mr. Brown says. Traditional water heaters store a tank full of water and keep it hot at all times, regardless of whether it is needed. Because a tank of hot water requires continual reheating to maintain a constant temperature, it tends to use more energy than a tankless heater.

A common misconception is that tankless heaters provide instant hot water at the faucet. A more accurate description is that they provide continuous hot water. It still takes a few seconds for the cold water in the supply line to clear the faucet before the hot water arrives.

Tankless heaters are made in a variety of sizes to service an area ranging from a single bathroom to an entire house. Physically, they take up less space than a tank and, depending on the model, can be installed indoors or outdoors. Mr. Brown says demand heaters last longer than tank heaters and don't have the same risk of leakage and property damage that tank models do.

"Small tankless heaters can be a great economical solution for projects like bathroom additions," says Phil Crone, Green Built North Texas program manager for the Dallas Homebuilders Association. Mr. Crone says a $200 electric demand heater that would fit under a bathroom sink may make more sense than adding a lot of pipe and drawing hot water from a tank heater.

The cost of a whole-house water heater ranges from about $400 to $1,600. Research from the Partnership for Advancing Technology in Housing indicates possible energy savings of 10 to 20 percent over a tank system, with homes that use little hot water experiencing the most savings.

Yvonne Kirchner, a Dallas homeowner who added a tankless water heater when remodeling her 1939 Dallas house, says she researched the choices online. She decided on one that fits the needs of her 1,600-square-foot house, which has a kitchen and one bathroom. She paid about $800 for the heater and had it installed on an exterior brick wall.

"I decided to go with the tankless because it saves so much space. It also just makes more sense. You don't have to constantly heat and reheat water," Ms. Kirchner says.

Erin Covert is a Dallas freelance writer.

Tankless factors

Flow rate. Tankless heaters are sized according to the gallons per minute of hot water they provide. For a 2,000-square-foot house with a kitchen, two bathrooms and a laundry room, a heater should provide at least 5 gallons per minute.

Unit cost. Tankless heaters cost more to buy than tank models, but they cost less to operate. A rough comparison is that a tank heater costing about $300 equates to a tankless heater costing $550 or more. Energy savings may be 10 to 20 percent per year, and Energy Star federal tax credits may be available, depending on the heater you install.

Installation cost. It varies widely, depending on whether the unit is for a new or existing house. New-construction installation costs are relatively low, but they can be higher for remodels. That's because the supply line that brings natural gas or electricity to the unit probably will need to be increased. If installed indoors, gas units also may require additional ventilation. Because tankless heaters are relatively new, few plumbers have experience installing them. Finding a qualified installer will help ensure that safety requirements are met.

Payback period. A homeowner can do a rough calculation to determine whether energy savings will make up for purchase and installation costs. For new construction, builders estimate that the payback period is two to three years. For remodels, payback depends on factors such as installation costs and how efficient the old heater is.