Tankless Water Heater Buyer’s Guide

By Michael Thomas

Tankless Water Heater Buyer’s Guide

Tankless water heaters — also sometimes referred to as an on-demand water heater — are a great option if you don’t have space for a conventional tank or if you don’t need much hot water. In this guide we’ll review the following:

  • When it makes sense to install a tankless water heater
  • How to find the best tankless hot water heater
  • How to estimate a tankless water heater cost
  • Tankless water heater prices
  • How to find the right size tankless hot water heater

If you’re ready to buy and install a tankless water heater check out this article: Best tankless water heater. In that article we review the best electric tankless water heater and compare prices and costs based on different brands and models. Or if you’re interested in an even more efficient type of water heater check our hybrid water heater buyer’s guide and review of the best hybrid water heater.

What are the pros and cons of tankless water heaters? 

In recent years tankless hot water heaters (again, some people call these on-demand hot water heaters) have become increasingly popular in America. Compared to conventional an electric water heater, 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 the more energy efficient hybrid water heater. However, if you are switching from a conventional tank, the installation cost will be higher.


  • Cheaper to operate — Using a tankless hot water heater can save you hundreds of dollars per year. A typical 40 gallon electric water heater will 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 hot water heaters use less energy, they also generate less emissions. That means a lower carbon footprint. Though it’s worth pointing out that they aren’t as environmentally-friendly as heat pump water heaters (also called hybrid water heaters).
  • 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 hot 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 electric water heaters 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.

How much does a tankless water heater cost

The cost of a tankless water heater is usually 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. This is a better way to look at it than simply looking at the tankless water heater price. Below we’ll break down those costs in more detail and help you understand a tankless water heater average cost.

  • Tankless water heater price — The price of the unit itself will of course have the biggest impact on the total tankless water heater cost. The cheapest electric tankless water heater costs about $360. The most expensive models cost as much as $2,500. The factor that will influence the tankless water heater price the most is the GPM capacity. The higher the capacity, the higher the price of an on-demand water heater.
  • Tankless water heater installation cost — 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. Ultimately the best way to find out the cost of a tankless water heater is to go on Google or Yelp and find a local plumber you can get a quote from.

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). This is about the same cost as installing a conventional 40 gallon hot water heater. It is about $500 less than installing a heat pump water heater.

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.

If you plan to use a tankless water heater for your whole home, then consider a heat pump water heater. They are the most energy efficient type of water heater and will save you thousands over their lifespan. If that’s of interest check out this article: Heat pump water heater reviews.

How to find the right size hot water heater

Sizing is a crucial factor that will determine your tankless water heater cost (both upfront and after installation). There are two factors you’ll want to consider when sizing a tankless water heater:

  1. Flow rate (GPM) — Tankless hot water heaters heat water instantaneously (which is why they are also referred to as on-demand hot water heaters). 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.

For our tankless water heater reviews article we sifting through all the online noise and marketing jargon to help homeowners find the best tankless water heater.

And if you are looking to save energy and money check out one of our other home energy guides:

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