The Homeowner’s Guide to Replacing Your Water Heater

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Is higher efficiency worth it? A more efficient option like a heat pump water heater isn’t just better for the environment and infrastructure, it’s usually better for your wallet, too. Efficient water heaters might have higher upfront costs, but the best options usually have a reasonable “payback period” (the amount of time it takes to recoup the initial cost) of 3 - 5 years. After that, it’s pure savings. If you’re concerned about the raw cost rather than the payback period, don’t go for very expensive options like installing gas piping and venting or moving to a photovoltaic solar system. Though these options are highly efficient and create long-term savings, they could take over a decade to pay back. While electric and gas storage tank water heaters are cheaper to install (assuming you don’t need to add gas lines to your home), annually heat pumps beat out both by $150 - $270, with about a $100 difference annually between the far less efficient electric storage tank and the highly efficient gas storage tank.

Introduction to Water Heater Replacement

Though usually out of sight in a basement, closet, crawlspace, or garage, your water heater is one of the most important pieces of equipment in your home and has the potential to be one of the most expensive to repair or replace. It’s important to know when it’s time to replace your water heater and it’s just as important to know what the best unit for your home is. The right unit can save you a lot of money, effort, and headaches down the line.

When to Repair or Replace Your Water Heater

Since a water heater is usually tucked somewhere out of the way, homeowners usually don’t realize there’s a problem until some very inconvenient situations start plaguing the household. Most of these problems can actually be solved by relatively inexpensive or simple maintenance:

  • Showers get cooler, going from hot to lukewarm to frigid.

  • Hot water goes away entirely.

  • The amount of hot water from the tap and/or hot water pressure decreases.

  • Water smells different, like rotten eggs.

  • The water heater itself starts making strange noises.

Unfortunately, there are a few problems, such as the water heater leaking from the tank, that mean it’s time to buy a new water heater.

Questions to Ask When Buying a Water Heater

Making the right choice means having the right information. There are questions you should ask about your situation before shopping so you can make the choice that’s best for your home and your bank account.

What type of water heater do I already have?

Replacing your broken water heater with the exact same type may be the easiest solution, but you might be missing a great opportunity to save money and increase efficiency and performance. Water heating costs are the second largest expense in most homes, accounting for 14% - 18% of utility costs.1

What fuel source do I currently use?

Changing fuel sources can go a long way towards saving money, but moving away from what you’re already using will likely incur some costs and a significant amount of effort.

What is my upfront budget?

Making the best choice for long-term cost savings or energy efficiency may mean spending more initially since you’ll need to change or update piping, wiring, location, or other variables.

Will the climate I live in affect my choice?

Some water heaters exude heat, others release cool air, and some water heaters can be vented to avoid either. When picking out a new water heater, consider the number of Heating or Cooling Degree Days in your area to determine what is the least burden for your heating and air conditioning systems.

Do I have an expansion tank?

Expansion tanks weren’t common until recently but are now required by most building codes and in new construction. Even if you aren’t required to have one, expansion tanks are a good idea for any home: they help absorb the ‘shocks’ that electronic shutoff valves, like those like those found in washers and dishwashers. Expansion tanks not only lengthen the life of a home’s plumbing, but they can also help homeowners avoid major issues or disasters. If you don’t have an expansion tank, installing one at the same time as a new water heater is a great idea. Tanks themselves are inexpensive, usually under $50.

Which Water Heater Is Best For You?

Water heater technology has expanded drastically over the past two decades, giving homeowners a wide variety of options. Water heaters can have storage tanks or be tankless and can run on a range of fuels including electricity, solar power, and natural gas. Water heaters can even be integrated with newer pre-existing heating and cooling systems to raise efficiency and save costs.

Electric (Storage) ⭐⭐

Costs including installation: $1,230 - $2,150 Common Brands: A.O. Smith, Rheem, Whirlpool, Kenmore, GE Lifespan: 10 - 15 years Low upfront cost to replace. Energy inefficient, making for high annual costs. Upgrade to an electric heat pump water heater if the home isn’t connected to gas line.

What is an electric water heater?

Electric storage water heaters are the most common type of water heater. These are the big, dusty tanks that lurk under the basement stairs and in utility closets.

How does an electric water heater work?

Electric storage water heaters have a large reservoir tank where water is heated and stored. Large electric coils hang submerged in the water inside the tank and these heat up to warm the water. When a hot water tap is turned on, hot water is released from the top of the tank while cold water is pumped into the bottom to refill the tank via a long dip tube that makes sure the cold water pushes the hot water upwards. A “sacrificial” anode rod hangs inside of the length of the tank, which encourages rust and bacteria to attack the anode rod instead of the tank.


  • Cost. As the most common water heater type, replacing an electric storage water heater is very simple and has a comparatively low upfront cost to other types of water heaters. Unlike some of the more modern types of water heater, there’s no need to worry about venting, as these don’t produce any exhaust.


  • Inefficiency. Though electric storage tank water heaters have one of the lowest upfront costs, they aren’t very energy efficient. They suffer from “standby heat loss,” which means since the water in the tank is always heated, that heat energy is wasted (lost to the environment) when hot water isn't running. Due to this, electric storage tank water heaters don't save much money in the long run, especially since electricity is more expensive than natural gas in most areas.

Gas (Storage) ⭐⭐⭐⭐

Costs including installation: $2,050 - $2,160 Common Brands: A.O. Smith, Rheem, Westinghouse, Whirlpool, Kenmore, GE Lifespan: 10 - 15 years Low upfront cost to replace (if gas lines to the home already exist). Energy efficient, with low to moderate annual costs.

What is a gas water heater?

Conventional storage water heaters can also run on natural gas (or propane in certain areas). These operate very much like the electric model though there are some different concerns.

How does a gas water heater work?

Much like an electric storage water heater, natural gas water heaters have a tank to hold the water, a dip tube to deliver cold water to the bottom of the tank, a shorter tube to take hot water from the top of the tank into a home’s plumbing, and an anode rod to attract rust and bacteria and help extend the life of the tank. This style of water heater warms water via a burner at the bottom of the tank that’s lit with a pilot light and line, similar to a gas stove. A chimney runs up through the tank to vent the exhaust (composed of carbon dioxide and water vapor byproducts) through a wall vent or into another chimney, depending on the home. Oil-fueled water heaters work much the same way.


  • Longterm savings. Natural gas is a much cheaper and more efficient fuel source than electricity or oil, saving you significant money in the long run. Natural gas is available throughout the US, though homes in very remote or rural areas may be off the network and require extension pipelines to connect in.

  • Efficiency. Gas as a fuel is far more efficient compared to electricity.


  • Upfront Cost. Gas-fueled storage water heaters are usually more expensive than electric water heaters (it’s important to note that cost analysis shows the long-term savings make up for the initial costs).

  • Energy loss. There is some energy loss that occurs from the necessary chimney venting. While the energy loss of a gas storage tank isn’t as inefficient as an electric hot water heater, there are better, more efficient hot water heaters available, such as heat pump hot water heaters.

Heat Pump ⭐⭐⭐⭐⭐

Costs including installation: $2,220 - $4,725 Common Brands: A.O. Smith, Rheem, GE, Stiebel Eltron Lifespan: 10 - 15 years Moderate upfront cost. Exceptionally energy efficient, with some of the lowest annual costs to run. One of the best water heater options available.

What is a heat pump water heater?

Heat pump water heaters are a relatively newer type of water heater. They’re one of the most eco-friendly and cost-effective options available.

How does a heat pump water heater work?

Heat pump water heaters draw heat from the air or ground and move it to warm water in a storage tank. They exhaust cooled air and have electric heating elements to function as a backup during high demand times or when heat in the air is lacking. A heat pump is just a reverse air conditioner, using the same technology to heat instead of cool.


  • Efficiency. A stand-alone heat pump water heater is one of the most energy-efficient methods of water heating available.

  • Air conditioning and dehumidifying. Heat pump water heaters are excellent for areas that are hot and humid throughout most of the year since they naturally provide cooling and dehumidifying as a byproduct of operation.


  • Placement. Locating the best spot in your home for a heat pump water heater can be challenging depending on where you live. In a moderate climate, a garage is a great spot to put your heat pump hot water heater.

    • Most manufacturers and experts recommend putting a heat pump water heater in a room with about 750 to 1,000 cubic feet of air space for peak performance.3

    • Heat pumps draw heat from the air, dumping cooler air into the room it’s located in, which places a burden on the heating system during cooler months. There also needs to be heat in the air to draw, so ideally the heat pump and water tank should be in an area that stays above 40°F to 50°F year-round (if it sometimes falls under 40°F, the water heater will still work, but it begins to lose efficiency).

    • Heat pump water heaters also dehumidify the air they draw in, so any space with a heat pump water heater will need some kind of drain.

    • Many heat pumps run about as loud as an air conditioner, around 60 decibels, which may be enough noise to be bothersome to some.4

Tankless ⭐

Costs including installation: $1,270 - $4,000 (The range varies due to the differences between electric and gas and if a vent system needs to be installed.) Common Brands: Rheem, Stiebel Eltron, Ecosmart, Rinnai, Takagi Lifespan: 20+ years High upfront cost with a very long payback period. Can’t handle a high demand for hot water, making it necessary to install multiple units in homes with medium or larger families. Switch to a heat pump water heater or gas storage tank water heater instead of a tankless water heater

What is a tankless water heater?

Tankless water heaters, as the name implies, don’t have a standing storage tank to heat water. Instead, they heat water “on-demand” such as when a tap, faucet, or other appliance is turned on.

How does a tankless water heater work?

Tankless water heaters create heat with electric coils or a gas-fired burner. They use a heat exchanger to transfer that heat to water, which circulates through the unit on its way to the faucet, dishwasher, or shower where it’s headed. Tankless heaters can be fueled by natural gas, propane, or electricity, though smaller “point-of-use” units are usually electric while larger whole-house heaters are often natural gas or propane powered.


  • Lifespan. Without a tank holding water, tankless water heaters have much better longevity than storage tank water heaters. Their lifespan ranges over 20 years, double the lifespan of a gas or electric storage tank water heater.5

  • Unlimited Hot Water. Since a tankless water heater warms water as needed, as opposed to drawing from a preheated tank of water, the quantity of hot water is unlimited.

  • Space. Tankless water heaters take up substantially less space than storage-based heaters, especially older model heat pump water heaters, which can be up to 7 feet tall and average around 5-6 feet.


  • Upfront Costs and Payback Period. Tankless water heaters have a very high upfront installation cost, which for gas tankless water heaters includes an expensive venting system. Both gas and electric tankless water heaters operate with complex mechanical parts that can be very costly to repair. Cost analysis shows that savings from tankless water heaters are marginal to nonexistent when the high upfront cost is taken into account.

  • Climate Challenges. The venting system for gas tankless water heaters has additional concerns for installation in very cold climates with low frost lines.

  • Throughput. For a family size of three or more, a tankless water heating system likely won’t provide a sufficient amount of hot water. Just running a dishwasher and hot shower at the same time can stretch a tankless water heater to its limit. This is often compensated for by adding more point-of-use units to heat individual areas, which drives up costs further.

  • Heating Time. “On-demand” does not mean “immediate.” Water runs for longer as you wait for it to heat up, leading to an increase in water use. The wait time varies based on the proximity of the water heater to the faucet and the diameter of the pipes, but some cases report up waiting upwards of three minutes. While solutions such as recirculation systems help with the wait time, they further drive up costs and lower efficiency.

Other Types of Water Heaters

Solar Thermal ⭐⭐

More expensive than photovoltaic solar (PV). Use photovoltaic solar instead of solar thermal, unless you get subsidies or incentives in your state specific to thermal. Solar thermal water heaters transfer radiation from the sun into heat to warm water through the use of solar panels.


  • Eco-friendly. One of the cleanest and environmentally friendly water heating options available.

  • Low Maintenance. Solar thermal systems require very little regular maintenance, generally only about every 3-5 years.


  • Inefficiency. Solar thermal is less effective and less efficient than a PV system.

  • Location Dependant. Solar panels are dependent on the amount of direct sunlight regularly available and require an unshaded area, ideally a rooftop that faces south.

  • Inconvenient Maintenance. Repairs and maintenance should only be done by a solar contractor.

Photovoltaic (PV) ⭐⭐⭐

Very dependant on both the home’s geographical location and the ability for the PV cells to get direct sunlight. Wait for solar photovoltaic prices to come down further before considering a large-scale PV system. Photovoltaic cells can be used to power other types of water heaters (ideally a heat pump water heater) instead of non-solar electricity or natural gas. PV cells don’t have any moving parts - electrons are energized by sunlight to create an electrical current.6


  • Payback Period. PV is cheaper than solar thermal, with a shorter period of time to see savings after the upfront costs.

  • Government Incentives. Some areas of the US may offer significant rebates and other incentives for switching to this more environmentally attractive option.


  • Upfront Costs. Though the cost of PV modules is dropping rapidly, PV still has one of the highest upfront costs of any water heating system.

  • Location Dependant. Like solar thermal panels, PV cells are dependent on regular direct sunlight.

  • New Technology. Relatively speaking, this is a new technology used more frequently in purposefully built green homes.

Indirect ⭐⭐⭐⭐

Low upfront costs and a long lifespan. A great upgrade for older homes unless there is a plan to change heating systems in the near future.

Indirect water heaters consist of a water storage tank with a heating coil inside. Hot water from the home’s boiler is circulated through the coils, heating the water for home use. Boiler water and use water never mix - the boiler water is in a closed loop system.7


  • Hot Water Supply. Indirect water heaters have a quick recovery rate, meaning a more forgiving supply of hot water than some other hot water systems.

  • Costs. Upfront and upkeep costs are low.

  • Lifespan. With no direct heat on the tank (such as the pilot flame in a gas-fueled storage water heater), there’s less wear and tear, resulting in a longer lifespan for the water heater.


  • Outdated. Only worth considering in homes with boiler-powered space heating systems such as radiators, hydronic baseboards, or in-floor radiant heating. These systems are rapidly becoming outdated in a market dominated by forced air and central air space heating systems.

Water Heater Tank Capacity

Different sizes of houses and households require different sizes of traditional storage-tank type water heaters. Generally, a small hot water tank that holds about 50-60 gallons will work for one to three people, a medium tank around 80 gallons functions well for three to four people, and a larger tank that holds over 80 gallons is best for larger households of four to six people.8 

Gallon capacity is a fine balancing act: too big and you’re spending too much money, too small and your family will blow through your hot water supply. To more exactly decide how big of a water storage tank you need, it’s important to figure out how much water your entire household uses. The standard measurement for storage water heaters (like gas, electric, or heat pump) is called first hour rating, which measures water usage by the peak demand per hour.

Keeping in mind the number of people in your household, determine what time of day the most hot water is used. Usually, this is either in the morning when people are getting showers before work or school and when laundry is done, or in the evening when dishwashers are tackling dinner dishes and when people are washing up before bed.

Then calculate using this worksheet..The appropriate storage tank water heater for you should have a first hour rating within 1 or 2 gallons of your first hour rating, to make sure it holds enough water to cover the most demanding times of operation.

New Water Heater Installation

One of the best places for most water heaters is an unfinished garage or basement, where there’s more room, accessibility, and where any water leaks won’t cause much, if any, damage. These spots are especially useful for older homes where plumbed drain pans aren’t as feasible as newer constructions. Ease of accessibility is another big bonus to installation in a garage or a prime spot in an unfinished basement; it’s very likely that hoses connecting your water heater to your water pipes will wear out well before the water heater itself, so being able to reach and replace them easily by yourself can save you the money and effort of hiring a plumber.

If you are replacing your water heater and possibly switching to a new fuel source or water heater type, it’s a great time to consider moving your water heater if the cost is reasonable, and it might even be necessary depending on the type of switch you’re making. For example, moving from an electric water heater stuck in a small closet near a heated common area to a heat pump water heater that requires more space for airflow and vents out cool air. To avoid an additional burden on the home’s heating system and with the airflow space requirements, the heat pump water heater will need a new home.

Beyond the requirements for different types of water heaters, there are other very practical reasons for moving your water heater while replacing it, even if you aren’t installing a new type or differently fueled water heater. Water damage is one of the most catastrophic situations for a home, and any storage tank-type water heater runs a risk of leaking. While homeowners insurance should cover most types of water damage, proactively moving your water heater is much easier than dealing with an insurance company and a water damage restoration company. This is even more important if you live in an earthquake-prone area.

Unfortunately, sometimes moving your water heater just isn’t the best option due to the cost of moving plumbing and other integral systems. Moving a gas-fueled water heater is more expensive than moving an electric one, with the need to move gas pipes and vents along with the same electrical outlets, and water pipes you’d have to move with an electric water heater. However, if you’re making the switch to gas-fueled from another type, this is a great time to make sure you’re placing your new water heater in the best spot.

What Our Experts Recommend

While picking the right water heater replacement for your home really depends on a lot of specific variables, there are some options that are definitively better than others.

There’s very little reason to switch from a natural gas-fueled water heater system to any other type of fuel source. Natural gas is cheaper than electricity so if your home already has natural gas and you aren’t using a gas water heater, make the switch.The upfront cost to add venting or run gas pipes through your home is worth the long-term savings. There may also be rebates available in your area for switching to gas from electric, but never the other way around. However, if you don’t already have gas, this isn’t a good option for you, since running a gas line to your home can be extremely expensive.

If you have an electric storage tank water heater and can afford the upfront premium, switching to a heat pump water heater is the best option. Electric storage tank water heaters are one of the least long-term cost and energy efficient units available. Though the upfront premium costs are a higher investment than other options, the cost savings break even within 3 - 5 years, one of the best payback periods for switching water heater types.

While it’s tempting to go even bigger and install a very versatile and excellently efficient geothermal heat pump system to pair with a heat pump water heater, we recommend against it. With high premium costs (anywhere from $20,000 to $40,000) and a substantially significant amount of work, the payback period for a geothermal system is so long that the average homeowner will never see a return.

For most situations, tankless water heaters are a bad choice. With their expensive upfront costs and complex mechanical parts that are expensive to repair, tankless water heaters take far too long to return their cost in savings. Electric tankless water heaters are an especially bad option, as their energy requirements are so high that many homes don't have a high enough amperage service connection for the tankless water heater in addition to other high electric draws such as a laundry washer and dryer, oven, dishwasher, and HVAC system. Tankless water heaters only really excel at saving space, but with so many other drawbacks they’re rarely a good option, much less the best option. 

Solar thermal water heaters are similarly a bad option, with few upsides and very little cost savings after the high upfront expense and the potential for expensive repairs. If you’re serious about a green solution and live where you get enough sunlightphotovoltaic cells powering a heat pump water heater are a much better choice, especially if you qualify for federal, state, or local rebates. However, due to the complexity of installing and maintaining a PV system and the high upfront costs, even a PV-based system should only be undertaken by those very serious about sustainability, green solutions, and new alternative energy options.

Hiring the Right Plumber

While a simple job like swapping an old electric storage tank water heater with a new one is something a homeowner can likely do themselves, you should consider hiring a plumbing professional for major water heater repairs, upgrades, and installations. 

Referrals. To find the right expert for you, check with friends and family in your area and see if they have a favorite plumber or contracting company that handles water heater work. Nothing beats a first-hand referral from a trusted source. You should also check reviews of the business online via review sites and social media. Not sure where to start without personal referrals? Expertise has articles featuring plumbing professionals in areas throughout the country. 

Licensing. Only hire professionals that are properly licensed in your area (most states require plumbers be licensed), bonded, and insured. Don’t just take their word on it - get proof that they’re licensed, bonded, and insured. If a contractor is hesitant to provide verification, consider another professional. Many states have online tools to check for licenses and formal complaints. 

Experience. Any plumbing business you work with should have a few years of experience under their belt. You want an experienced professional and also a reliable company, so be on the lookout if a company has a history of name changes or isn’t willing or able to supply references. A Master-level plumber will also have a degree and completes several hours of continuing education per year. 

Quality. Any plumbing professional you hire should offer a warranty their parts and labor for at least a year. A good rule of thumb when choosing professionals for an expensive job is to get at least three quotes or estimates. If one quote is dramatically lower than the others, it’s a sign that the professional could be cutting costs and corners.

Checklist for Replacing Your Water Heater

▢ Decide best water heating system

▢ Identify tank size

▢ Locate ideal water heater placement

▢ Three bids from qualified plumbers

▢ Clear contract with plumber

▢ Procure permits

▢ Warranty on parts and labor

▢ Warranty on new water heater

▢ Ensure good drainage (if necessary)

▢ Replace drain valve with ball valve

▢ Earthquake strapping

▢ Venting (if necessary)

▢ Expansion tank

▢ Easy to reach shutoff valve


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