As an architect I’m amazed at the hype and misconceptions surrounding tankless water heaters. Too many people seem convinced that they’re magic while a few think the opposite. I’ve dealt with both types for years and here is what I’ve found out:

-Modern tankless heaters work just fine if properly sized. Undersized tankless heaters don’t for obvious reasons. The same is true for tank-type heaters.

-Good brands have a decent service life and good reliability. Most plumbers I know like Takagi and Noritz the best. They aren’t the price leaders but as with many things you get what you pay for. Rheem is generally respected but opinions of Bosch vary quite a bit.

-A tankless heater won’t save a fortune in energy costs over a modern, well insulated tank type but will possibly save a bit. Given the additional costs of the tankless it probably doesn’t make financial sense to change to tankless for that reason alone.

-Because the burner on a tankless must heat very rapidly it often takes a larger gas line than a tank type heater. In a retrofit situation this can add substantially to costs if the heater location is such that running a new gas line is difficult.

-Some tankless heaters can make noise when the burner lights and ramps to full output. Mostly this isn’t an issue but I do have a client who had two paired tankless types removed from her house. In that situation the heaters were located on the first floor exterior wall below her bedroom wall. Her husband is a pediatric neurosurgeon who is often on call in the event of a head injury to a child. If he has to go to the hospital in the middle of the night he’ll take a quick shower first. Each time the heaters would come on with a bang and wake the wife up. Since the master shower is well over 40' and down a hallway from their bed I know it wasn’t the noise of the water. A 100 gallon tank type heater was installed with great difficulty in their basement and she now sleeps better.

-Tankless heaters can be used with circulating pumps just like tank types. This keeps warm water in the pipes so no more wasting water if the heater is a long way from the tap. It does use more energy so best to put the pump on a timer for when the hot water is usually needed.

-Tankless heaters are ugly. I hate seeing them on the outside of a house so will only put one outside if there’s a wall nobody ever looks at. There is also some concern if on a wall with a zoning code minimum distance from the property line as mechanical equipment is often prohibited in the required side yard setback.

I also really like the Polaris water heater. It’s hybrid between a tankless and tank type, in that it’s got the high output burner and control system of a tankless but with a small 30 gallon tank. Thus any temperature changes in the water due to high demand are buffered, but like a tankless it never runs out of hot water. It’s also smaller than a large capacity conventional tank type which can be very helpful in a remodel and addition where the house is being enlarged but you want to keep an old water heater closet.

I don't know much about electric water heaters as they're difficult to use in California due to energy analysis requirements. The water heater counts for a lot in the analysis programs so if you're using an electric you'll take a big hit on glazing type and amount and have to add lots of extra insulation. Given that gas heaters are much cheaper to run no client would want an electric unless their house is in an area with no gas service which is quite rare in SoCal.