It heats water only while it is flowing
A tank heater keeps 40 or 50 gallons hot all day. A tankless unit keeps nothing hot. When you open a hot tap, water starts moving through the unit, a flow sensor detects it, and the burner (or electric elements) fires. Water passes through a heat exchanger and comes out hot. Close the tap and the unit shuts down.
Flow rate is the number that matters
Because it heats on the fly, a tankless unit is rated by how many gallons per minute it can raise by a given temperature. Groundwater coming into the house in a Pacific Northwest winter is cold, so the unit has to raise it further than it would in a warm climate. That is why sizing is based on how many fixtures you run at once and how cold your incoming water gets, not on the size of your old tank.
Gas tankless units need real gas supply and venting
A gas tankless unit burns far more gas at full fire than a tank heater does, though only for minutes at a time. The gas line often has to be upsized, and the unit needs its own venting. Condensing models capture extra heat from the exhaust and produce acidic condensate that needs a drain. Those details are most of the cost of a conversion.
Why the first few seconds can be cold
- Distance: Hot water still has to travel the pipe from the unit to the fixture, same as with a tank.
- Cold water sandwich: If you shut the water off and back on quickly, a short slug of cold water can come through before the burner catches up.
- Minimum flow: Very low flow may not trip the flow sensor, so a barely-open hot tap can run cold.
Scale is the maintenance item
Minerals in the water build up inside the small passages of the heat exchanger. Over time that reduces output and triggers error codes. Most manufacturers call for periodic descaling, usually through service valves on the unit. We cover that on our water heater maintenance page.
Is it right for your house?
That comparison is its own post: tank vs. tankless. Short version: tankless shines with steady demand and space limits, and it costs more up front.