Tankless water heaters don't take up nearly as much space as storage-tank water heaters (and are easier to install). That's because they don't include a storage tank at all; instead, they heat water on demand. Depending on the model, tankless water heaters run on natural gas, propane or electricity, and many are designed to be energy efficient. For example, our top pick, the Ecosmart ECO 27 (Est. $500) , boasts 99.8 percent efficiency and a flow rate of two to four gallons per minute.
The biggest consideration with the Ecosmart ECO 27 is in colder climates; it has difficulty producing the proper water temperature for showers and similar household needs. It's designed for use in climates where the temperature (normally) does not drop below 37 degrees Fahrenheit, which excludes many areas in the Northern U.S.
The Ecosmart ECO 27 runs on electricity and requires 200-amp electrical service. Owners posting feedback to HomeDepot.com and Amazon.com say it's worth the investment for the ongoing energy savings this tankless water heater offers. Because it's only heating the amount of water used at a given time, it doesn't consume any excess power to maintain temperature or reheat water in a storage tank. If you're switching from a natural gas water heater, you may notice an increase in electricity usage, but it should pay for itself over time.
With digital temperature controls, users can select the precise water temperature they want on the Ecosmart ECO 27, down to one-degree increments. Owners mention some malfunctioning electrical parts on Amazon.com, but a few reviewers contend replacement parts are easy to obtain at popular hardware retailers. The Ecosmart ECO 27 contains a lifetime warranty on parts, but doesn't cover labor costs.
If you're looking for a tankless water heater that can be used for camping, outdoor showers or washing cars, the Eccotemp L5 Portable Tankless Water Heater (Est. $120) is an affordable option with a lot of versatility -- it even includes a showerhead. Unlike the Ecosmart ECO 27, it doesn't use electricity at all; in fact, it functions completely off the grid, using propane as fuel and two size-D batteries for ignition.
The Eccotemp L5 produces about one to 1.3 gallons of hot water per minute, less than the Ecosmart ECO 27. However, a few owners on Amazon.com say they use this tankless water heater on a daily basis, sometimes two to three times each day. The unit is so powerful; one man writes he never turns the heat setting above 50 percent and still gets water hot enough for showering -- resulting in less fuel usage and a lower cost of ownership over time.
Still, the Eccotemp L5 isn't ideal for whole-house use. If you're looking for a tankless water heater with the capability of providing ample hot water for an average-size family, the Ecosmart ECO 27 costs a few hundred dollars more but will pay for itself over time through energy savings.