Cost

• Tankless water heaters range from $600 to $1,300, while traditional tank water heaters can be purchased for $300 to $500. If you don't use a lot of hot water or have a small family, your energy savings may not justify the cost.
  
  

Installation

• On-demand gas heaters have special venting requirements and also need an electricity source to provide a "spark" that starts the heating process. Electric versions may require the installation of a 220-volt line.
  
  

Consumption

• The notion that your hot water will never run out with an on-demand water heater may cause you to actually use more hot water than you normally would, erasing any possible energy savings.
  
  

Limitations

• On-demand water heaters can only supply so much hot water at one time. For example, if two people are taking showers simultaneously, the water heater may not be able to provide enough hot water.
  
  

Potential Drawback

• Electric on-demand water heaters can draw a great deal of power, and they may have trouble heating water in cold climates.