Tankless Water Heater Buyer’s Guide

Tankless Water Heater Buyer’s Guide

What are the pros and cons of tankless water heaters? 

In recent years tankless hot water heaters — also referred to as on-demand hot water heaters — have become increasingly popular in America. Compared to conventional tanks, they are much cheaper to operate since they only heat water when you need it. They also take up much less space in your home than a conventional tank. However, if you are switching from a conventional tank, the installation cost will be higher.


  • Cheaper upfront unit cost — Most tankless hot water heaters are cheaper than conventional tanks by hundreds of dollars.
  • Cheaper to operate — Using a tankless water heater can save you hundreds of dollars per year. Whereas conventional tanks cost anywhere from $200 per year for the most efficient models to $800 for the least efficient models, tankless models often cost less than $100 per year to operate.
  • More environmentally friendly — Because tankless water heaters use less energy, they also generate less emissions. That means a lower carbon footprint.
  • Less space — Tankless water heaters are smaller and can be mounted on the wall, which means they can easily be stored in small laundry rooms and closets.
  • Longer lasting — Tankless water heaters last about 20 years, which is 2-3x longer than conventional storage tanks.
  • Safer and cleaner — Compared to a conventional tank, tankless models won’t leak a lot of water, build up Legionella bacteria, or tip over in an Earthquake. The air supply and exhaust vents are also sealed which means you don’t have to worry about gas leaks or carbon monoxide poisoning.
  • Easier to winterize — Getting your tankless water heater ready for winter takes seconds compared to conventional tanks that take a long time to drain.


  • Higher installation cost — Depending on your home, a tankless water heater may cost more to install. That’s because most homes in America have conventional tanks and switching requires more labor and parts than simply replacing an old unit with the same type of heater.
  • High GPM capacity models are expensive — Tankless hot water heaters are best if you don’t need to use a lot of hot water simultaneously. You can buy models that offer as much as 12 GPMs (far more than enough for a big family all showering at once), but they are expensive (~$2,500).
  • Longer payback period — If your installation costs are high that means it will take longer for the monthly savings to pay themselves off. You can figure out exactly how long it will take by dividing the total cost by the monthly or yearly savings.

Upfront cost of tankless water heater

Tankless water heaters cost between $1,000-$4,500. You will probably hear people talk about the total installed cost. That’s another way of saying the cost of the unit, labor and parts. Below we’ll break down those costs in more detail.

  • Unit cost — The cheapest hot water heaters cost about $360. The most expensive models cost as much as $2,500. The factor that will influence price the most is the GPM capacity. The higher the capacity, the higher the price.
  • Labor to install — The cost of the labor depends on how long it takes a plumber to install the unit and how much they charge (which depends on living costs in your city). According to Fixr, plumbing hourly rates range from $45-150 per hour with the average plumber charging $85 per hour. Installing an electric tankless heater should take about 2-3 hours and cost $90-450 for labor. Installing a gas tankless heater costs more — as much as $1,200 plus an additional $500-1,000 if you need to install a gas line.
  • Carpenter labor (sometimes) — In rare cases installing a tankless heater requires a carpenter to do drywall work. According to Fixr, this should cost between $100-300 at an average carpentry rate of $75 per hour.
  • Supplies and parts — Your plumber may need to use connectors, fittings, mounting hardware, and other parts during the install. According to Homewyse, this should cost about $50.
  • Disposal — A plumber may charge beween $25 to $500 to remove your old hot water heater and dispose of it properly. (This large range is why we recommend getting multiple quotes so that you can compare each plumber and get the best deal).

For example, Fixr says that the average tankless water heater is $2,800. But keep in mind that according to the latest census, the average American home is 2,392 square feet. According to Pew Research, the average home has 2.64 people living in it. And while I don’t have any data or sources to back this up, I’d venture to say that the average plumber is going to recommend a water heater that covers every edge case and errs far on the side of more, rather than less capacity. (Plumbers make more money selling bigger units and don’t risk getting bad reviews if they install a small unit and an angry homeowner gets upset when they try running three showers at once).

Why is all that important? Because every home, person, and family is different.

As I write this, I am sitting in a 1,100 square foot home (half the average). My last apartment was 800 square feet. I live with one other person who takes showers two hours earlier than me each morning. We run the dishwasher and laundry at night (not while we shower). That means the GPMs we would need are going to be far lower than the average, which means the cost of a tankless water heater would be much lower.

While many American homes are set up for conventional tanks, yours might be set up for a tankless option which means the install cost could be a few hundred dollars.

So there’s a good chance that you could buy a $350 tankless water heater and pay a plumber $400 to install the unit (a total installed cost of $750).

Annual operating cost of tankless hot water heater

The next thing to figure out is how much it costs to run your tankless hot water heater each month or year. In other words, how much are you going to have to pay in utilities each month or year?

The easiest way to figure this out is to look for the bright yellow Energy Star label, which will tell you how much you can expect to pay each year to operate your unit. Many manufacturers also list it in the product information. But these estimates are averages and there are a number of factors that influence your operating cost.

  • Energy factor — This measures the efficiency of your tankless water heater. According to Energy Star, tankless water heaters have Energy Factors that range from 0.96 to 0.99. The higher the number, the more efficient the unit and the less money you’ll pay to operate it.
  • Energy consumption / usage — If you combine the energy factor with the frequency that your tankless water heater is used, you’ll get the total energy consumption. For electric heaters, this is measured in kilowatt hours per year (kWh/yr). For gas units this is measured in therms or British Thermal Units (BTUs) per year.
    Cost of energy — Once you know the expected energy consumption per year you can multiply that by the cost of energy and get the expected operating cost each year. Electricity costs are measured in cents per kilowatt hour (kWh). Natural gas costs are measured in therms, British thermal units (BTUs), and cubic feet (Ccf). If you need to convert them, you can use this calculator on the EIAs website.

Electric tankless water heaters cost between $75 and $300 per year to operate whereas gas tankless water heaters cost between $175 to $500 according to our review of the most popular models.

How to find the right size hot water heater

There are two factors you’ll want to consider when sizing a tankless water heater:

  1. Flow rate (GPM) — Tankless hot water heaters — also called on-demand hot water heaters — heat water instantaneously. The flow rate measures the maximum amount of water they can heat on demand.
  2. Temperature Rise (ΔT) — The temperature of the incoming cold water — referred to as the groundwater temperature — determines how much energy will be needed to heat the water. Temperature rise is measured by taking the desired hot water temperature minus the incoming ground water temperature (which will vary by time of year and the place you live).

The important thing to remember is that the higher the temperature rise needed, the lower the flow rate. Almost all models will include the GPMs based on different temperature rises in the product information like the image below.

Notice that they list three things:

  1. A map of the inlet temperature (also called the groundwater temperature)
  2. The GPMs their model achieves based on different inlet temperatures
  3. GPMs of commonly applications (like showers and kitchen faucets)

Pro tip: If you really want to be precise in your required GPM estimate, turn on the water of any fixture (a shower or sink) and fill a bucket to a 1-quart mark. Dividing 15 by that number of seconds equals gpm.

Best tankless water heater

We looked at every tankless water heater on the market and our favorite is the Rheem Performance 27 kw (5.6 GPM). 

Rheem vs. EcoSmart

Compared to the EcoSmart 27 kw, one of the top selling tankless water heaters on the market, it is a bit more expensive ($30 more). But in digging deeper we found a lot of customer complaints for the EcoSmart 27kw and started looking more into the product quality, warranty and customer service experience.

Rheem’s corrosion resistant components last longer

All of Rheem’s tankless water heaters are built with corrosion resistant metal, which means that they are less likely to leak due to “hard water.” 

What is hard water you ask? Well in America most water supplies have minerals that can build up in a hot water heater and ultimately corrode the tank. 

EcoSmart’s tankless water heaters by contrast are made of copper, which means they can corrode quickly. And while they claim to have a lifetime warranty, it’s important to read the fine print. 

Here’s what EcoSmart’s warranty says: “SUCH WARRANTIES DO NOT COVER: Product failure caused by liming, sediment buildup, chemical corrosion, chlorine/chloride corrosion, or freezing.”

If your EcoSmart does corrode then customer service will tell you that you should have soaked the heating components in vinegar every six months (which is quite the inconvenience). 

And that’s why the internet is full of bad reviews on EcoSmart’s products like this: “I wish I had never bought this product. I’ve had to replace the heater elements twice in about 3 years at cost of about $250 for the parts ($85 for 2 elements) plus labor for each incident. I have sunk about a $1,000 into this unit and more failures are to come.”

Rheem’s tankless water heaters aren’t perfect. But they receive consistently higher ratings than EcoSmart tankless water heaters. And that’s largely due to their build quality. 

Rheem vs. Stiebel

The company that claims to offer the highest quality product is Stiebel, a German-based manufacturer. 

We compared the Rheem Performance 27 kw to the Stiebel Eltron Tempra 24 Plus. 

At $620 the Stiebel tankless water heater is $115 more than the Rheem and $145 more than the EcoSmart. 

Like the Rheem, the Stiebel Eltron Tempra is built with corrosion resistant materials. So it’s a better option than the EcoSmart. 

But at a price premium of $115 we don’t think it’s worth it given that the quality is similar to the Rheem.