Tankless Water Heaters - Advantages and Disadvantages

For those of you interested in the bottom line on tankless water heaters, here it is. The complete story follows this list.

Advantages:

• Definitely saves on natural gas - we use 50-75% less gas. As gas prices have increased, that is worth $14-22 per month.
• You never run out of hot water - if you take showers back-to-back (at the same time does not work so well - see the disadvantages)

Disadvantages (or at least things to consider):

• Installation is very expensive - probably as much as the unit. I recommend having someone local do it all, so you can get service when necessary.
• You can only heat so much water at once - usually 4-5 gpm depending on the temperature of the incoming water. This may be enough to run a shower and something else at the same time, but don't count on it.
• Electric units my require an upgrade to your electrical system (they take a lot of power). Natural gas units require large piping all the way to the unit.
• If you lose electricity, you lose hot water. Even the gas unit requires electricity to run the fan and controls.
• More moving parts means more things to go wrong (and fewer people around to work on them). It has certainly made me appreciate the simple tank water heaters.

The Story

My wife and I live in a 4-plex (all 1-bedroom units) that we own. We are fixing up & living in the bottom two while renting out the top two.

We bought it a little over a year ago, and the water heater was 25-30 years old (gotta love those Rheemglass Fury water heaters). It was also a 40-gallon water heater trying to serve 4 bathrooms while having the additional disadvantage of being seriously corroded by very hard water.

So we decided to take advantage of the tax credits that expired last year to put in a Takagi T-K3 tankless water heater - I figured we should spend about 1/2 as much on water heating, and have "endless" hot water. That is, we could take as many showers as we wanted back-to-back (not at the same time. The previous water heater lasted barely over one shower.

Of course, I searched on the internet for the best price I could find and bought one to install myself. Little did I know what I was getting into...

Installation Location

I had planned to install it in the same place the previous water heater had been - in the middle of the basement, venting into the chimney. After reading the manual (and talking to a plumber), I realized I could not vent it into the chimney unless I lined it or bought a special stainless steel vent to run all the way to the top. Considering this vent material cost about $20/foot, I quickly decided against that.

The plumber informed me that they are best installed on an exterior wall, with the special vent piping running straight up and out. Of course that would require about a 6" hole through the wood at the top of the basement wall. I did not really want to tackle that myself...

Installation Cost

I got a quote from the plumber to install it - $800-$900 including the vent materials. That's more than I paid for the heater!

I ended up spending almost $200 for the vent piping and $100-200 to cut the hole and install the sleeve through the wall. Add in some money for the additional 3/4" black gas piping we had to run, and there is probably $400 in materials. Plus my labor to install.

Definitely more work than I had planned on...

Operation

We had some immediate operational problems that took a long time to resolve. They ended up being my fault (mostly).

Do not install an "excess flow" or "safety" gas valve in the natural gas piping! These valves are designed to stop flow in the case of a hose breaking - when the flow rate gets too high. Guess what - at max burn on the water heater, the flowrate was too high, and the valve shut the gas off. Weeee! Cold water!

Once we resolved that, we dealt with really smelly exhaust (I could smell it on the other side of the house when the water heater was on). It ended up being an easy gas manifold pressure adjustment. Except for the fact that I had to buy an $85 digital manometer to make the adjustment.

After that, we had a continous fan noise. Tech support again walked me through what to do, and I found a piece of packing styrofoam in the fan. Not a huge deal, but annoying.

Most recently, we had a REALLY loud noise periodically (and eventually got an error code). Did I mention that the water heater stopped working late at night when I tenant was trying to shower? Again, weeee - cold water! Turned out this was because of dirty combustion (and incorrect manifold pressures). We still are not sure if it is because of the wrong pressures (and therefore bad combustion) or acidic condensate in the exhaust dripping back into the burner and heat exchanger. I guess we will find out...

Conclusions

Definitely know what you are getting into before switiching to a tankless water heater - I didn't.

If I were doing it all over again, I would get a unit from a local plumber and have him install it, or just get the 50-gallon tank water heater with the best insulation I could find.

It hasn't been bad to work on, but I like hands-on things. I also like now having the knowledge to fix a number of things on my own. At the same time, I like things to work the way they are supposed to.

I will keep you updated on any future issues with the unit. Otherwise, I am just looking forward to enjoying some natural gas savings!

Home sweet 4-plex

The financial freedom discussion was important background for this topic, which falls under the reducing expenses side of achieving financial freedom.

For those of you that don't know me personally (and how "frugal" I can be), you may find this interesting. My wife and I were recently looking for new digs in our new hometown of McPherson, KS.

Now McPherson is very interesting. Although it is a small town in Kansas (population of about 14,000, not including livestock), it has a great, stable industrial base which keeps the average wages among the highest in Kansas. As a result, home prices are almost as high as those in Kansas City (for those of you on a coast, that may seem low, but for those of you from rural Kansas, you know that seems high).

So we looked for houses on some acreage (like the one we currently have outside of Kansas City) and found we would have to pay just as much for houses that were about 80 years older.

Instead of buying what we considered to be an overpriced house on acreage, we instead decided to buy a 1920s house that had been converted into four 1-bedroom/1-bath units. And further reinforcing that this was God's plan for us was the fact that two of the four units were occupied, leaving the two larger bottom units open for us!

The way it worked out, we got a 100% loan on the property from a local bank. We ended up getting cash back at closing (we got the renter's deposits, pro-rated taxes, etc - I need to go back and look how we pulled that off - I didn't expect it), and the two renters will ending up paying about as much as the mortgage payment (we have some repairs to do, and we are going to roll that into the mortgage, so I don't know the final amount yet).

Now we do have to pay some common utilities and all of the taxes and insurance for the property, but overall, we will be living in 1400-1500 square feet of space - 2 bedrooms, 2 baths, for very little money.

It is also in the middle of McPherson, so we can walk or ride our bikes most places in town that we need to go (except in bad weather). Very importantly these days that will minimize our gasoline usage.

Just one more step towards financial freedom!

Renters

It seems as though when I talk to people about rentals, the first words out of 80-90% their mouths are something along the lines of: "oh, I will never have rentals because I don't want to be fixing toilets at 2 in the morning."

It really saddens me that people first reaction is potential negatives instead of the potential positives (like "mailbox income" and great cash flow). I used to be this way, so I understand how devastating this mindset can be.

As with any potential downside, you can always do things to avoid it. The cleanest way (if you have enough cash flow) is to hire a property management company. They typically charge about 10% of gross rents, but some markets are lower (around 7%). They deal with all of the typical headaches - collecting rent, coordinating maintenance, paying utilities (if some utilities are paid by owner), running ads for new renters, taking applications, and getting new renters in. They typically pass through the additional charges (for maintenance work and sometimes advertising), and they typically charge a fee for each new lease they get signed.

This is all background to a story:

Late last week, we got our monthly check from our property management company for our investment property (5-unit house). Along with it was a long description of the various incidents that had recently happened with the tenants in one of the units.

Apparently, there were several incidents where the father in this unit pulled a gun on other people. This apparently was not the first time as he had pleaded no contest to a similar charge within the past year (before we bought the property). The offended parties refused to press charges, though one police report was filed.

I suppose such incidents would discourage some people from owning rentals. Not me - that just makes me more determined to be successful.

I am VERY thankful that I have a property management company in place for that property so that I don't have to deal with such issues myself. I am also really looking forward to the property manager screening the tenants - the background checks they do should avoid most such issues in the future.

The moral of the story is that anything you don't want to deal with in business (rental real estate or otherwise) can be outsourced to others. Even as a very "frugal" person (my friends have less nice words they would use), I see a lot of value in paying other people to do the things I don't want to do and am not very good at.

Where there is a will, there is a way.