Why would you buy a tankless water heater.

       You can't turn on a "handyman" show without some bearded, flannel-wearing, guy telling you that; "Of course, you should always install a tankless water heater".  This is because they are so efficient, that for each one installed, 50 trees spontaneously sprout.  The efficiency of these device is not in question, as they are around 24% more efficient than their larger tank-having cousins, but are they worth it?

       While apparently you could devote over a year and many pages to researching this, like the Minnesota Office of Energy Security did, you don't need to.  (http://www.mncee.org/getattachment/7b8982e9-4d95-4bc9-8e64-f89033617f37/)  I have read their report, corroborated their findings, (didn't need to, they were quite thorough) and will tell you.  In short, no.  Not worth it. and not as good as you think.

       One reason is, like hybrid cars, they take a claim that is good, and pad it until it becomes untrue.  See the testing for tankless heaters is supposed to be for a 77 degree rise in temperature, matched to a volume of output.  Many decided the numbers sure looked better with a 45 or even a 35 degree rise.  So they base their numbers on that.  What is 35 more than 40?  Not "hot" water.  Fine for Florida, not so for the rest of the country.  So check the numbers.

       Another item of concern is that what you save in gas, you might waste in water.  There is a significant "time to temperature" lag.  Since it only heats on demand, if you aren't running water, it isn't trying to heat.  There is also the fact that a slow trickle of water, such as used for shaving, usually isn't enough to activate the heater.  So full flow for shaving.

       Now to be fair the cost of wasted water will not exceed the savings in gas or electricity, but it does cut in to it.  In a new construction scenario you avoid one of the main issues, and that is the cost to install.  Substantial re-piping, re-venting, and an electric line to run the fan.  (High-efficiency water heaters and furnaces exhaust sideways through PVC instead of up.  This is due to relatively cool exhaust temperatures)

       Other things being equal though the main question is: over the 20 year life of either product, will you save the difference in purchase cost?  That answer is a firm "No".  They do not pay for themselves.  This is not counting the other issues mentioned above.  Dollar for dollar you lose money with a tankless heater.

       Now if your goal is saving the earth, and you don't mind paying more to do so, by all means, buy one.  But until these things come down to a price equal to their tanked cousins, they are not an economically viable option.  I guess when all of your tools are provided free by a sponsor, and someone else is paying for the appliances, like on those shows, you lose sight of the value of a dollar.