Not realizing that I had done this in 2009, I (Cheryl Jasper) just asked neighbors about tankless hot water heaters again in January, 2014! The results are similar. Here's the summary I posted to the email list:

Wow, am I surprised! In general, the feedback was negative! I expected you all to tell me you loved your tankless hot water heaters and wished you'd done it sooner, but that didn't happen. There were a couple of people who said they like theirs, but most recommended that I not switch. The main reasons are:

1) way higher cost in terms of the heating unit vs tanked (like $1200 v $400). 
2) way higher cost in maintenance — you'll have to get it serviced maybe 1/year 
3) much more complicated device — don't buy Rheem they are horrible. but nonetheless all of them are much more complicated than tanked water heaters with stuff waiting to fail 
4) overall with all the added costs, you will NOT break even on the "energy savings" for about 20 years 
5) no instant on hot water — you need to let it run for 30s or so before it gets hot (also not a great idea during a drought)

I was very surprised that the hot water is not instant. One of my main reasons for looking into it was wasting less water. My hot water comes to the faucets very quickly now, so I don't want to lose that! The only advantages are:

1) endless hot water (not a great idea during a drought) 
2) takes up less space in the closet

Those reasons definitely don't outweigh the disadvantages, so I'm probably not going to do it. :(

............Later, I got more valuable information from another neighbor, so I'm posting that here, too:

Another (very minor) advantage of a tankless is there isn't 40 gallons (about 320 pounds) of water inside to slosh around in an earthquake. But that's why you strap it to the framing - again, much cheaper solution.

Regarding the potential for a flood from a failed water heater, that is why the current code requires a water heater to be either outside (where some people install their tankless ones) or over a catch pan that has a drain to outside of occupied space. I think the City has a fact sheet on water heater replacement available at the Community Development counter (and maybe on-line now) that spells out that and other requirements like flexible connections and earthquake restraints. That outside-drained pan is really the only guarantee against water damage in case of a leaking water heater, which can occur at any time regardless of age.

The most common failure mode for a water heater is corrosion of the steel tank leading to leakage. Protecting against that corrosion, there is a metal anode rod screwed into the top of the water heater. That is the big hexagonal head on top that doesn't have any external pipe or vent connected to it. The anode is a sacrificial device to combat corrosion and it is eaten away over time. One can remove and inspect it and replace it if it has completely or mostly been consumed. I admit I have never done that, but it is something that can be done.

When the anode is all gone, the corrosion process starts to work on your tank. When leakage starts it usually is a very small pinhole at first, so if that leakage can be observed at the onset a replacement can be arranged before the volume escaping gets out of hand.

Another, more practical, preventive maintenance process (which I also admit I have never done) is to periodically drain sediment out of the bottom of your water heater's tank. This may help reduce corrosion. Just connect a garden hose to the spigot on the water heater and let the water drain out it until it runs clear.

Water heater lifetimes, even of identical units in very similar circumstances, can vary considerably. The townhouse we live in is in a group of 3 built about 30 years ago. Our original water heater failed first, somewhere around 20 years of age. Our first replacement failed just outside its 6-year warranty and they would not do a thing for us. Our second replacement (12-year warranty) is still in service. The original water heater in one of the other units failed somewhere around 24 years of age, with its replacement still hanging in there. The third original water heater is still soldiering on after 30-ish years. The townhouses are all 2/2.5 units and none has been vacant for an extended period. Households have usually been 2 to 4 per unit, although the one with the senior water heater did have a single occupant for a few years. Go figure.

Based on our own experience, I suspect that water heater makers have fine-tuned the size of the anodes to make them as small as possible and still have most heaters last the warranty period. Perhaps larger anodes are one difference when they offer longer warranties. Thus, there is a possibility that buying a newer heater may actually reduce the remaining life expectancy of the heater in your house.

So after making sure your catch pan drains outside (which can be problematic if the water heater closet is in the center of the house), draining the accumulated sand and gravel out of it is an inexpensive measure. If you want to avoid buying a modern "value-engineered" water heater, having a handyman or plumber check and/or replace your anode might be both cheaper and provide better long-term results than a brand spanking new heater. You also don't need a building permit to perform such service activities, another small savings. And as an added benefit you wouldn't be generating a scrap water heater just yet. The steel in them is highly recyclable, the foam-in-place insulation not so much.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Cheryl Jasper gathered the following information from neighbors about tankless hot water heaters in May, 2009: 
(See also Water Heater Replacement.)

From Wouter:

  • Water heaters can last VERY long, if you regularly flush them and occasionally replace the anode rod. The anode rod is a sacrificial metal rod that corrodes slowly; in doing so it protects the tank from corroding. Flushing is pretty easy to do, and once a year is all it takes. 

  • Tankless heaters take up less space than your current heater, so space should not be an issue. They have no connection with your furnace whatsoever, they are independent units.

Cons:

  • They make some noise when they operate (it's a big flame, after all) 

  • Requires a furnace-size gas line. Chances are, you'll need a bigger gas line installed unless your furnace is right next to the heater. Gas work can get expensive. 

  • Requires a special exhaust. Especially when mounted inside a house, the exhaust materials and installation can add up (to say $800.....). The furnace needs a LOT of air when it's running, it's basically a second furnace. 

  • Suffers from 'cold plug'. This won't be much of an issue for you since yours will be mounted indoors, but because the water coils around the burner is not insulated, it cools down quickly. So if you rinse, then take your time to lather up (with the water off), and turn the water back on, you may experience a short burst of cooler water. Again, this is unlikely to be much of an issue for you. 

  • some units require electricity for their electronics, which means that when the electricity is out, your GAS water heater no longer works... If this worries you, pick a type that runs on batteries or hydro electricity. Those don't need a separate electrical connection. 

  • Installation costs can be higher just because the plumber does not like installing the unit :-)

Europe has been running on instant heaters for many decades, and it all works great. My brothers house in the Netherlands has a single unit that heats water, as well as the house. The whole unit is smaller than a US furnace, way quieter, and much more efficient.

Anode rods: [WWW]http://www.plumbingstore.com/sacrificial_rods.html 
Flushing the heater: [WWW]http://www.wikihow.com/Flush-a-Water-Heater

From DJ:

We got a tankless water heater (Rheem) installed recently. It's a gas heater and used our existing gas lines into the house. They only had to install new venting pipes (which they did over the roof), though I think they had to do something else to work the connection to the gas line properly.

As for cost, I'm not actually sure...we bid on the tankless water heater in a KQED auction and got it for I think a little under $3K which included installation, and the heater itself, and was actually at the stated value of the package in the auction. But I guess they (Rheem) priced the installation too low because we had two other companies back out of doing it, finally KQED did get another company (Master Plumbing — highly recommend) to do it, and they did a great job. The installer told us that normally an installation like this would cost around $7K, so I guess KQED had to pick up the extra since the water heater was donated by Rheem. So I think if we started from scratch and got a TWH installed now it would run about $7K for everything. I feel a little bad for KQED since our initial intention was to support them and get a water heater, but I wouldn't have paid $7K out of pocket for it...didn't even think we really needed it for $3K, but my wife wanted it because of her family.

Ok, pros and cons...

Pros:

  • It takes up almost no space. The TWH we got is an indoor model (they have outdoor models as well, but they need more insulation and protection from the weather). It's installed where our old Tank water heater was. It's freed up a good deal of space in that closet so we can no put other stuff in there on the floor, like buckets, brooms, etc. 

  • You don't run out of hot water. Truthfully this was NOT a problem for us at all, except in infrequent circumstances when we had a lot of family visiting. But when they did visit, there was a lot of strife over the hot water... 

  • You can control the temp of the hot water since there's a digital console (ours is set for 120 F) 

  • Can't break and spill water all over your floors (which has happened to at least 2 friends of mine in the neighborhood)

Cons:

  • The gas turns on and off when you turn on the water...a really small stream doesn't seem to be enough to trigger it, so I feel we end up using more water than we did before because you have to let it run for a bit before it gets hot, and you have to let it run with a larger stream than you would have used before. So I'm sure we're using a lot more water. So for example, I used to shave with a razor and would turn the hot water on and off in small trickles to save water and clean the blade....now if I shave like that I get a lot of cold water, to get hot I'd have to waste a lot of water...so I switched to an electric razor I got a long time ago as a present and didn't use much, and I'm fine with that now.

  • Since you have to let it run for a bit, some things like the dishwasher, laundry might not get as much hot water when they run as they did before (since it starts out cold and then heats up). Not sure if this matters too much.

  • In the event of emergency (earthquake) you don't have the clean usable supply of water which you would have had in your hot water tank.

In terms of utility bills, I don't know since I really don't pay that much attention :( but I have a feeling we're using less gas overall, but more water.

Overall I like it. I do think they should improve their design by having a small reservoir of water in an insulated container (holding maybe 1 gallon of water) so then you could let it run til you get hot water, and then turn it on and off in small trickles since you'd get already heated water from the reservoir.

From Rahul and Lisa on Dell:

We replaced our hot water heater with an outdoor tankless. We love it. I think we have the same basic house design as you and we put the heater outside for a number of reasons, including an extra closet near our kitchen and it was cheaper to put it outside because we didnt need an exhaust flume. Sam Custer in our neighborhood put it in for us and the total cost installed was about $2500 (i cant remember exactly). We can run over 2 showers forever. Couple issues included not being able to use the water rescricter in one of the bathrooms (maybe too restrictive of a flow).

Also we had a carpenter put in shelfs in our new closet, but a couple small adjustments need to be done for ventilation for the furnance (if you close up the closet with the water heater you need new ventilation).

CJ interjection: I asked a few more questions, and Rahul responded:

Lets see if I can answer these, its going to be a bit of a ramble... We didnt need a bigger gas pipe but it was something that Sam checked. There is a little insulation aroudn the pipes outside just for pipes and thats all that was needed and that was included in the price. The unit is made for outdoor use. I honestly dont know how much gas we are saving with it because we also updated our doors and things and substantially reduced our heating bill because we only heat the back of the house at night not the addition that was added in front. So I think those things together make it too hard to see what the various saving come from. I think we only wait 4-5 seconds longer for hot water then we did before and that is on the first time we use the heater. I usually use the water to start brushing teeth or something, so on balance i dont think I am really wasting any more water then before. So in the morning if the first person uses the water anywhere in the back of the house, the other bathroom/shower etc doesnt really have that delay anymore because the hot water has made it to through the pipes. That water seems to stay at least somewhat warm for an hour or so. Sam is a licensed plumber, been doing it for years, is in the neighborhood and I found him through asking on this mailing list. He is REALLY REALLY good. The biggest issue i would say is he is in demand because is rates are very reasonable and he is good. He always takes emergencies people have so on a project like this you just have to check with him. However, that water heater installation was great for us and he did all the extra pipe work first, and then he just "switched us" over in a couple hours and we never lost water for more then a half day. The brand is a Japanese brand, I think a Nortiz or something like that. I did some research on the web at the time and with a couple other people and it was a good brand, the biggest issue is noise. You can hear the water heater when you first turn on the hot water (I think its opening the value and firing up the gas or something). However, its only when you actually use it, so never at night when you are sleeping unless someone turns on hot water, and really only on the bedroom thats directly where its installed next to. I thik the Rheem is supposed to be quieter. Sam has installed these tankless for years and years he said and he never has to go back to fix or maintain them. Its sort of water I read about them. The other thing I like about it, thats not talked much about, is that since the water doesnt sit in the heater being stored, its alot cleaner then the stuff in a regular water heater, but I havent read that for sure, just a couple people told me.

I didnt shop for it, Sam gave me the catalog, I agreed with his recommendation, and his price included him getting it, and taking the old one out (though I had the garbage company do the pick up of the unit).

The shelves were put in by a licensed carpenter that noitced that the intake for the furnance and exhaust of the furnance came through the hot water heater closet. To seal up the bottom inlet what cut airflow to the furnance. You should check yours to see if it was the same as ours. So the carpenter cut a inlet into the floor of the furnance closet, because we closed off the the hot water heater inlet. The top exhaust in the water heater closet, would have been expensive to reroute to the furnance, so we left that opening at the very top still.

Hope that helps. We love the heater, we love the extra closet. I like having lots of guests and never running out of hot water. Its nice with little kids to be able to keep the water temperature reasoanbly low so it doesnt burn them, because you never run out. We liked both of the contractors that did the work, Sam for mostly everything, and Rusty for the shelves, sheetrock in the closet etc... There is supposed to be a $400 tax credit for the tankless, but I didnt find it exactly in time for taxes this year (it was spring break for my kids), but I would recommend checking that because it effects your cost as well.

From Kevin O'Leary:

go over to barron park plumbing and electric on san antonio and talk to paul,or one of the other owners. they'll give you the straight poop about both kinds.

From Michelle on Hamilton:

PA Plumbing did an excellent job; they were in and out in a day.

I imagine the cost could be much higher depending on the size of your house (= bigger unit needed) and whether you have an Eichler (= plumbing rerouted through slab foundation). We live in a Mackay, so routing water and gas lines wasn't a problem.

I can't remember the brand of heater off the top of my head (we went with what PA Plumbing recommended, and haven't been disappointed). You're welcome to swing by and look at our installation.

From Adrienne Heiskanen on Palmer: 
April 2010: We hired Sam Custer (650-537-0352) based on info we found on this wiki. He was thorough, professional and a pleasure to work with. Total cost was $2,308, which included the tankless heater with a 3 simultaneous shower capacity and removal of the previous water heater and old pipes. The new water pipes put in were all copper. Sam had to go under the house, but we have a crawl space rather than a slab foundation. Best of all, we gained a closet, as the tankless heater was installed outside. The purchase qualifies for a tax credit of up to $1500 in 2010.

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