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Indoor vs Outdoor Tankless Water Heater

By: David Trinh
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Indoor vs Outdoor Tankless Water Heater

When choosing a tankless water heater, the first thing you need to decide is if you want gas or electric.

Next, you need to pick between indoor and outdoor. Neither type is inherently better; rather, you need to consider the pros and cons of each to decide which would be more suitable for your situation.

Pros of Indoor Installation


Let’s start by looking at why you may want to install an indoor tankless heater.

They’re Ideal for Cold or Windy Climates

If you live in a climate where the temperature can drop to below freezing (even if only during a couple months of the year), an indoor water heater is ideal. There is a far lower risk that the heater will suffer from freezing damage. At the most, you’ll need some insulation or wrap on the plumbing near the exterior. There is no need to carry out any other type of maintenance to keep your heater protected.

Similarly, an indoor heater is more suitable if you live in a climate with strong winds or ocean spray. Either of these could damage an outdoor unit.

You Can Increase the Resale Value of a New Construction

If you’re building a new home, you can plan for an indoor heater from the start. This is particularly important if you want a gas water heater. You’ll be able to set up the home with the necessary venting and gas lines and there will be no need to make any adjustments when it comes to the installation. The benefits of an indoor tankless gas heater (such as lower energy costs and no risk of weather damage), will increase the resale value of your home.

Cons of Indoor Installation


What if neither of the above applies to you? Unfortunately, there are quite a few downsides to indoor water heaters.

Indoor Gas Heaters Must Have Venting

Venting is not optional — indoor gas heaters must have proper venting to stop poisonous gases from entering your home. If your home lacks venting, this can mean significant installation work. Plus, you may need to apply for a building permit to carry out this work.

Your Gas Tankless Heater Will Need Annual Maintenance

For the same reason, an indoor gas heater will need annual maintenance. A licensed HVAC professional must check the condition of your heater to ensure that it is combusting correctly and that there are no leaks or cracks in the pipes. Without this annual maintenance, you put your family in danger of carbon monoxide poisoning.

Gas Water Heaters Create Condensation

In addition, gas tankless heaters can create a large amount of condensation when they are heating water. They require sufficient drainage to prevent water damage to the inside of your home. This involves installing a condensate drain and routing it to a utility sink or a drain in the floor.

Indoor Heaters Make Noise

Both gas and electric heaters make noise when heating water, but the problem is more pronounced with gas heaters. Some people are bothered by this. When you install a heater indoors, you are much more likely to hear the noises.

A Heater Requires Space

It may be impossible to install an indoor water heater if you live in a small space. Although tankless water heaters require much less space than conventional tank heaters, you will still need to dedicate a spot in your home for an indoor heater. You need to take into account the room not just for the heater itself but also for plumbing and electrical connections as well as ventilation (for gas heaters).

There’s a Risk of Leaks

Lastly, there’s always the possibility that your heater could leak. Although a broken tankless heater will leak much less than a broken tank water heater, it can still cause some damage. At the end of its life, small leaks are quite likely. When the heater is outdoors, in contrast, leaks are rarely a problem.

Pros of Outdoor Installation


We’ve considered the pros and cons of indoor heaters. What about outdoor water heaters? It turns out that they have their fair share, too.

Installation Is Simple — Even for Gas Heaters

Gas tankless heaters are particularly ideal for outdoor installation, as there’s no need to change the structure of your home. Then, there’s the venting. As the venting is much shorter for outdoor gas heaters, there’s no condensation. As a result, there’s no need for a drainage system, which is good news if you lack good drainage in your home. This is important because improper drainage is a common cause of damage to the heat exchanger.

Installation Is Faster and Cheaper

All the above means that, if you are changing from a tank to a tankless system, you’ll be able to install your new unit much sooner by choosing an outdoor water heater. You’ll also save money on installation costs.

Outdoor Heaters Have a Long Lifespan

When outdoor tankless heaters feature all the appropriate protection they need for the cold, wind, rain, and sun, they last just as long as indoor models. As enclosures are made from aluminum, they are completely rustproof. Plus, all the components within the water heater are designed to withstand the elements.

Finding a Place to Install the Heater Is Easy

Finally, there’s deciding where to install the water heater. For an indoor heater, this can mean making some changes to the interior of your home. With an outdoor heater, it’s far simpler — provided that the heater has access to the necessary plumbing and electricity, it can fit just about anywhere. If you’re looking to purchase several point-of-use electric heaters, this is especially ideal. In fact, installing them outdoors can be a major space saver.

Bear in mind, though, that it is best to install an outdoor water heater close to the appliances that are using hot water — for instance, outside the bathroom. If you install the heater far away, it will take the hot water a few seconds to travel through the pipe. This means that you will need to both wait longer for the water and spend a bit more on energy costs to have water that is still hot enough when it arrives.

Cons of Outdoor Installation


There are many advantages to outdoor water heaters, but there are also several disadvantages to take into account before you decide that one is right for you.

They Need Weatherproofing

The main disadvantage to outdoor tankless water heaters is that they need freeze protection for the heat exchange if they’ll be exposed to cold temperatures. Freeze protection systems are often electrically powered and may require a different power source to the heater itself. This adds to the energy costs of the heater. In other words, the money you save on installation costs you may end up spending on weatherproofing costs.

Outdoor Heaters Are More Expensive to Purchase

Then there is the cost of the water heater itself. Outdoor heaters are often more expensive than indoor water heaters. This is especially the case when they feature extra insulation or they are designed for all types of weather.

In a Power Outage, Your Heater Could Break

There is always the chance that you could suffer a power outage during cold weather. If you live in an area where power outages are common and last long (such as in a location prone to natural disasters), it could be risky to have an outdoor heater. If you lose the freeze protection, your water heater could be irreparably damaged.

You May Need to Adhere to Building Codes

The need to follow specific building codes could make installing an outdoor tankless heater difficult. In some buildings, there are even rules against mounting a water heater outside.

There’s a Risk of Vandalism and Theft

A final problem is the risk of vandalism. If you live in a safe area or you can install your outdoor water heater out of reach (such as in a protected backyard or high up on your house), this is unlikely to be a concern. However, if there is any possibility that your water heater could be vandalized, you may incur expensive repairs or even need a new heater long before the end of its natural lifespan. Worse still, thieves could take the entire unit or some of its more expensive pieces.

Of course, installing a security camera will deter vandalism and theft, but this will add to the costs of having an outdoor heater.

Indoor vs Outdoor Tankless Water Heater: Which Is Right for Your Situation?

Indoor Installation
Outdoor Installation
Cold or Windy Climate
Lack Setup for Indoor Gas Heater
Poor Interior Drainage
New Home
Limited Space
Spend Less for Unit
Gain a Quiet Home
Vandalism Concerns
High Risk of Power Outages

Several Point-of-Use Heaters

Now that you’ve figured out which type of heater is right for you in the indoor vs outdoor tankless water heater debate, it’s time to choose a unit. Check out the top models we’ve reviewed — it will make the selection process easier.

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David Trinh
David is an expert in all things plumbing, heating, cooling, and water treatment. He got his start in the plumbing business working on fixing all types of home improvement issues including water leaks, broken toilets, appliance installation, and more. Over time, he learned a ton about installing and choosing the correct water treatment products for homeowners.

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