Indoor vs Outdoor Tankless Water Heater (2024)

Updated on:
January 6, 2024

You’ve finally decided it’s time to make the switch to a tankless water heating system for your home. After all, they typically last longer and have lower operating and energy costs compared to conventional tank water heaters. They are also generally more expensive than storage tank variants, but their higher efficiency and durability can offset the high purchase price. 

In addition to choosing a gas or electric unit, you must also choose between an outdoor and indoor tankless water heater. None is intrinsically superior. However, you must weigh the merits and pitfalls of each to determine which is more appropriate for your household.

This article explains the differences between the two versions of tankless water heaters to help you make the right choice for your home.

Advantages of an Indoor Tankless Water Heater

Indoor water heaters may or may not be ideal for your residence, depending on a number of factors. If you overlook some details that impact the operation of an indoor water heater, you may have problems in the future. If you intend to install your tankless water heater indoors, you will enjoy the following benefits:

1. Perfect for colder climates

Indoor tankless water heaters are ideal for cold or windy regions. Low temperatures can increase the workload and duration of your water heater. It lengthens the time required to heat water to a reasonable temperature, thereby requiring more energy. Placing your water heater inside your home should protect it from the elements, especially during winter temperatures. Even though it will still work harder than water heaters in homes located in warmer climates, it will heat more effectively than if it were installed outdoors.

By just keeping it indoors, assuming you have heating, you will save a substantial amount of money on insulation and pipe replacements over the winter. Your home’s space-heating solution will keep your pipes from freezing, and your tankless water heater will likely require far less maintenance than if it were left outdoors.

An indoor water heater is especially suitable for people who live near the seaside, as it is protected from ocean spray and strong saline breezes.

2. Improve property resale value

If you’re buying a new home, you want your prospective property to offer nearly everything you need to live comfortably. Most real estate agents understand that installing an indoor tankless water heater in a residential property increases its resale value by providing conveniently available water heating for the purchaser’s household, and it will never diminish the curb appeal of the home.

3. Ideal for new construction

Indoor tankless water heaters may be the preferable alternative for a new construction home because they will be an intrinsic component of the new home rather than being added later.

Owners of older homes may have difficulty installing indoor units since tankless water heaters require particular venting, and some immovable objects, such as concrete walls, will affect their placement.

Since venting methods may be implemented during the design process, newly constructed homes seem to be the best option for indoor tankless water heaters. As a result, making plumbing adjustments becomes easier as space can be used more efficiently.

4. Easier maintenance

Because indoor tankless water heaters are kept inside, away from the elements, they experience little wear and tear. Indoors, your water heater, and its precious copper components, is also safe from theft and vandalism. With such assurances you’ll see a more considerable return on your investment. 

Disadvantages of Indoor Tankless Water Heaters

Indoor water heaters also have their fair share of disadvantages:

1. Risk of carbon monoxide poisoning

This problem is specific to indoor gas tankless water heaters. They require sufficient ventilation to expel carbon monoxide from the home. Carbon monoxide poisoning, according to the Centers for Disease Control and Prevention, can cause vomiting, disorientation, chest discomfort, upset stomach, dizziness, weakness, and headaches.

Meanwhile, the Minnesota Department of Health has identified water heaters as a common carbon monoxide emitter. If your home lacks proper ventilation, you may need to install one. Gas tankless water heaters have two venting options: power vent and direct vent. Power-vent systems use indoor air for burning and expel exhaust gasses outside. Therefore, they demand bigger spaces in order to have sufficient air for combustion.

Direct-vent systems are preferable solutions when space is limited since they use external air. This makes them more flexible in terms of installation, as they can be placed in small spaces, such as the attic or a storage closet. However, installing a venting system for your water heater may be rather costly. Installing a gas tankless water heater can range between $900 and $1,700. Add in the cost of installing a vent, and you might easily spend several hundred dollars more.

2. Noise

Some tankless indoor water heaters are extremely loud and produce a great deal of condensation. If you are a light sleeper and you sleep near the water heater, you will find it difficult to fall asleep when someone is taking a shower. Some families may find this problematic. Also, water droplets may drop on the floor due to condensation but not because of a leak.

3. Leaks

In addition to condensation, an indoor tankless water heater is also prone to water and gas leaks, especially if it was installed improperly or is poorly maintained. Granted, this is an issue that also affects outdoor tankless water heaters. However, in indoor situations, water or gas leaks can cause a lot of damage to the household and can also cause fatal accidents. You will have to hire a licensed plumbing professional to check your water heater’s integrity every year. That ensures your unit does not have cracks or leaks that carbon monoxide gas or water can leak through. Also, it’s advisable to check your tankless water heater at least once every day to ensure there are no leaks.

The Advantages of Outdoor Tankless Water Heaters

Is there insufficient space in your home? If you lack room within your home for a tankless water heater, placing it outside will conserve space. Here are other benefits of outdoor tankless water heaters:

1. Easier and faster installation

Outdoor tankless water heaters don’t need a ventilation system. The exhaust port is located at the front of the heater, but there are no costly pipes or other venting components. This is what makes their installation simpler, quicker, and more affordable compared to indoor heaters. Furthermore, they can be mounted anywhere as long as they have access to plumbing and electrical connections. Outdoor tankless water heaters are available in both gas and electric tankless models, and they can resist severe weather with some waterproofing techniques.

2. Ideal for warmer climates

Heating your water using an outdoor tankless water heater is rapid and effective if you live in a warm climate. You should not place this unit inside your home since the heat it produces will simply make your life more miserable. 

3. More durable

Manufacturers develop outdoor tankless water heaters with outstanding weatherproofing due to continual exposure to adverse weather conditions. They can withstand snow, strong winds, rain, high heat, and other natural elements. Most outdoor heaters are also enclosed in aluminum, making them practically rustproof. With added freeze protection, these tankless outdoor water heaters are able to withstand even the harshest of winters.

Disadvantages of Outdoor Tankless Water Heaters

Outdoor tankless water heaters aren’t perfect in every way. They also have significant drawbacks:

1. Theft and vandalism

Outdoor tankless water heaters are frequently disregarded during security planning. Due to their typically out-of-the-way installations, they are susceptible to theft, tampering, and vandalism. As previously stated, the majority of outdoor units contain copper pipes and coils. This metal may be sold to salvage yards and recycling businesses with few, if any, questions concerning its source.

2. Expensive

Despite being easier and cheaper to install, an outdoor tankless water heater is typically more costly than an indoor heater. This is especially true if they are equipped with additional insulation or weatherproofing technology. 

3. Prone to breakage during a power outage

Due to the electrical nature of its freeze prevention system, an outdoor tankless water heater may need to be powered by a separate power source. This may raise your energy bill significantly. This means that the money you save on installation will be used for weatherproofing expenses.

4. Building permit

Your water heater is an essential component of your house. However, a water heater explosion or other failure might have catastrophic implications, which is why water heater installation regulations are strictly enforced throughout the United States.

So, if you’re thinking of installing a water heater, you should be aware of the necessary safety precautions, both to comply with legal requirements and to keep your house and family safe. Adherence to certain building rules may make installing an outdoor tankless heater problematic. Some properties even prohibit the installation of an outdoor tankless water heater.

Indoor vs Outdoor Tankless Water Heater — How To Find The Best Location

The efficiency of your tankless water heater will vary depending on where you install it. When deciding where to place your heater, keep the following in mind:

1. Accessibility

Before you decide where to put your tankless water heater, you should think about repairs and maintenance that may be needed in the future. If you are replacing your old conventional tank heater, it’s best to install the new tankless heater in the same location as the old system, as you won’t have to make any major plumbing changes and you’ll save money on installation.

2. Moisture

You should not place your tankless system in an area prone to wetness or excessive humidity, or in an area where liquids may splash on it. Moisture may damage the burner and reduce gas flow, resulting in the system shutting down. Corrosion of the heat exchanger may also cause the system to overheat. An indoor tankless water heater is especially prone to corrosion due to moisture buildup. 

3. Temperature

Outside temperatures can have a major impact on your tankless water heater. Extreme cold weather may cause the water inside it to freeze, which results in substantial damage that your warranty may not cover. It is thus advisable to install an indoor tankless water heater if you live in an area with severe seasonal weather. If you want to install an outdoor tankless water heater, its freeze protection system will need constant power to operate during the winter.

4. Dust and debris

Your tankless heater’s location should be clear of dirt and other debris. Particles from aerosols and other pollutants might block your heater’s air vent, causing the fan to malfunction and the gas to burn inefficiently.

5. Demand areas

You should install a tankless water heater near the high demand areas in your home. The closer your tankless water heater is to these high demand areas, the faster the hot water travels to the point of use. This saves water and heating energy, which translates to lower energy bills.

Indoor vs Outdoor Tankless Water Heater: The Final Verdict

Since tankless water heaters are incredibly energy efficient, both indoor and outdoor tankless water heaters are superior to traditional tank heaters. You should purchase an outdoor unit if you live in a safe area with a mild climate and can make a few adjustments to your home in order to fit the unit. If you are concerned about vandalism or harsh weather, an indoor tankless water heater should be your first option. You should also take into consideration that weatherproofing and theft prevention will increase the unit cost.

Now that you understand the difference between an indoor and outdoor tankless water heater, you can make an educated choice about which system is ideal for your household. If you want to find which brand is best for you, read my review of the 7 best tankless water heaters in the market.

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