Saving Money With a Tankless Water Heater
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We moved into our home back in June. The house is on a nice sized chunk of land for our area and we are very happy there. The one issue we are dealing with is our water. Not the pressure, but how much it costs us to heat. After some digging we discovered that our water heater is really old and undersized, which is a terrible combination at best. Our electricity bill has been much higher than at our old home, but with less space.
Since I hate having to pay more for electricity, I decided to figure out what was causing our problems. After testing and researching, I narrowed it down to the water heater. As I said, it is undersized for our home. It is also quite old. The temperature has to be set to 140 degrees in order to pull out 115 at the tap.
This means the thing is running constantly to keep the water warm and has to double up when we run the tank out of hot water. This happens quickly when we give my son a bath. So, in true personal finance fashion, I have decided to look at the costs and benefits of changing out my tank heater for a tankless water heater to determine the payback period.
The Benefits of a Tankless Water Heater
You may have heard things about tankless water heaters or you might not even know they exist. Tankless water heaters tend to be much more efficient than traditional water heaters. Water doesn’t have to sit in a tank and be heated. You heat water on the fly with a tankless water heater. You can get hot water on demand and receive a constant flow of it. Theoretically, you should never run out of hot water with a tankless heater.
After looking around, I found that people save on average 20% of their water heating bill by switching to a tankless water heater. It can be hard to trace back all that savings, but if you use all electric like I do, then it can be easier. On top of saving money you are dealing with a smaller footprint and less environmental impact. I am cool with that.
The main drawbacks of a tankless water heater are the upfront cost and an inability to get hot water when your power or gas goes out. You have to settle for cold water at that point. With a traditional heater, you can still use the hot water in the tank until it runs out. I have had to do that once so far, so that was a nice thing.
The Costs of a Tankless Water Heater
Tankless water heaters cost much more than traditional ones. I can get an 80-gallon traditional heater for around $400. This does not include installation. If I wanted a tankless water heater, it’s going to cost me $750 for the size of my house.
Since the initial installation of a tankless heater is costly, you could end up paying well over $1,000. Luckily for me, I have electric power and an unused circuit, which the new tankless heater can be installed on. I got a few quotes and I would be paying a little over $1,000 for the install and product. I would be paying $650 for a new traditional water heater. The difference is $350.
What About the Payback Period?
I am currently leaning toward purchasing a tankless water heater. The benefits for us outweigh the costs. Since we are about to embark on a basement renovation, this could be a great addition. Our tank heater sits right on the floor in the basement. It is about two feet from a wall. Very convenient, I know!
If I went with a tankless heater, I could move it beneath my stairs and have functional space where the old heater is now. The big problem for me is the payback period. This is how long it would take to repay the initial investment just with the monthly savings. Here is how I am going to calculate this.
I am going to assume my old/crappy takes about 30% of my electric bill. Seriously, that thing is freaking terrible. I’m also going to say a new traditional heater will save me 10% each month. A tankless water heater will save me nearly 25% based on how we are running now.
My overall electric bill averages $100 a month. That makes it very easy. If I bought a traditional water heater, I could save $10 per month. With an overall cost of $650, it would take me 5.41 years to recover the costs. Not bad…just kidding! 😉
With a tankless water heater, I could save $25 per month. At close to $1,000 for the heater and install, it would take me 3.33 years to recover the costs. Well, isn’t that a little better.
Let’s assume the water heater needs to be replaced, which it really does. Instead of doing a payback analysis on the overall cost, why not do it on the difference. If your water heater breaks, then you have to get another one. This would be money I would have to spend. If I decided on going tankless now, then I would have to pay $350 more to get it. If it was going to save me $25 per month, then it would only take me 1.16 years to recover the costs of the upgrade.
The moral of this story is to make sure and weigh all the costs and benefits of any upgrade. With this information, I will be going with a tankless water heater and plan on getting it installed soon.
What do you think about tankless heaters? Have you calculated the payback period yet? What are other ways you can save money around the house? Do you analyze your utility bills for cost saving opportunities?
Photo courtesy of: stevendepolo