How Does a Tankless Water Heater Work?

Tankless water heaters have become one of the most popular upgrades in residential plumbing, but a lot of homeowners aren't entirely sure what's happening inside the unit. Understanding how they work makes it easier to understand why they last longer, why hard water is such a threat to them, and why proper installation matters so much.

Here's a plain-language explanation of the process, start to finish.

The Core Idea: Heat on Demand

A traditional tank water heater stores 40–75 gallons of water and keeps it hot around the clock, whether you're using it or not. A tankless unit does the opposite: it heats nothing until you actually need hot water.

The moment you open a hot water tap anywhere in the house, a flow sensor inside the tankless unit detects water moving through the line. That signal triggers the unit to fire, and cold water passes through a heat exchanger where it's heated to your set temperature in seconds. When you close the tap, the unit shuts off completely.

No stored water. No standby heating. No tank to corrode.

Step by Step: What Happens When You Turn on the Hot Water

You open a hot water tap. The flow sensor inside the tankless unit detects movement in the line.
The unit fires. On a gas unit, the gas valve opens and the burner ignites. On an electric unit, the heating elements activate.
Cold water enters the heat exchanger. The heat exchanger is a series of small copper or stainless steel tubes surrounded by the burner's heat. Cold water flows through these tubes and picks up that heat rapidly.
Hot water exits to your tap. By the time the water reaches the end of the heat exchanger, it's at your set temperature and ready to use.
You close the tap. The flow sensor detects that water has stopped moving. The unit shuts off immediately.

The entire process from detection to delivery takes a few seconds. The unit uses no energy between uses.

The Heat Exchanger: The Most Important Component

The heat exchanger is the heart of a tankless water heater. It's what makes the on-demand heating possible, and it's the component most vulnerable to damage in Arizona's hard water environment.

In a gas tankless unit, the burner sits below or around the heat exchanger coils. The high-BTU output of a whole-home gas unit, typically 150,000–199,000 BTU, heats the exchanger quickly enough to deliver a continuous supply of hot water even at significant flow rates.

In Mesa's 12–18 gpg water, calcium and magnesium minerals deposit on the interior surfaces of the heat exchanger over time. This scale acts as insulation, forcing the burner to work harder to achieve the same water temperature. Left unaddressed, it degrades the heat exchanger, reduces efficiency, and eventually causes failure. Annual descaling removes that buildup before it causes damage.

Gas vs. Electric Tankless Units

Both types use the same on-demand principle, but they differ in how they generate heat.

Gas tankless units use a high-BTU gas burner to heat the exchanger. They're the most common choice for whole-home use in Arizona because they can handle high flow rates simultaneously, they heat water faster, and natural gas operating costs are lower than electric in most Arizona homes. A whole-home gas unit typically requires a ¾" gas supply line, which is larger than what most standard tank heaters use.

Electric tankless units use heating elements rather than a burner. They're well-suited to point-of-use applications, like a dedicated unit under a kitchen sink or in a bathroom far from the main heater. Whole-home electric tankless is less common in Arizona because the electrical demand is significant, often requiring panel upgrades.

Why Proper Installation Matters

A tankless unit's performance and lifespan depend heavily on how it's installed. The most common issues we see come from installations that cut corners in three areas:

Gas line sizing. Most tankless units require a ¾" gas supply line to deliver enough fuel for the burner at full capacity. Homes with a standard ½" line need an upgrade. Running a high-BTU unit on an undersized gas line results in insufficient heat output, particularly when demand is high.

Venting. This is one of the most significant differences between a tank and tankless install. Traditional tank water heaters use metal B-vent or single-wall metal flue pipe — none of which is compatible with a condensing tankless unit. Condensing tankless water heaters require PVC Schedule 40 or approved polypropylene pipe, because exhaust temperatures are low enough that combustion gases condense inside the vent, corroding metal pipe rapidly. The existing metal venting must be removed and new PVC runs installed. Tankless units also require a dedicated direct-vent setup drawing combustion air from outside and cannot share venting with other appliances or route through a chimney. All of this is workable, but it adds meaningful scope to the installation beyond what a tank replacement requires.

Condensate drainage. Condensing tankless units produce acidic condensate (pH 3 to 5) as combustion gases cool and water vapor condenses inside the unit. This condensate must drain through PVC or CPVC pipe, not metal, and many local codes require a neutralizer installed in the drain line to raise the pH before it reaches the sewer. Neutralizers use a limestone or calcium carbonate media that depletes over time and needs periodic replacement — a minor but ongoing maintenance item to plan for.

Done correctly, a tankless install is more involved than a tank replacement. Done incorrectly, it creates the exact problems homeowners were trying to avoid.

What a Tankless Unit Can and Can't Do

Can do:

Deliver continuous hot water to multiple fixtures simultaneously when properly sized
Operate for 15–20 years in Arizona with proper maintenance
Reduce water heating energy use by heating only on demand
Free up floor space with a wall-mounted profile

Can't do:

Deliver instant hot water if the unit is far from the tap. Water sitting in the pipes between the unit and the faucet is cold and has to clear before hot water arrives. A recirculation pump solves this — some tankless units include a built-in recirculation pump and buffer tank that virtually eliminates the wait. On units without it, an external recirculation pump can be added.
Perform at its rated efficiency without annual descaling in hard water areas
Run at full capacity on an undersized gas line or inadequate electrical service

The Role of a Water Softener

In Mesa's hard water environment, a tankless water heater and a whole-home water softener are a natural pair. The softener removes calcium and magnesium minerals before the water reaches the heat exchanger, dramatically slowing the rate of scale accumulation. Homeowners with a softener in place typically see longer intervals between descaling service and better long-term efficiency from the unit.

It's one of the more impactful combinations available for an Arizona home's plumbing system.

Thinking About Going Tankless?

Superstition Plumbing has been installing and servicing tankless water heaters throughout Mesa and the East Valley for over 45 years. We size units correctly, handle the gas line and venting work, and give you a flat-rate quote before any work begins.

If you're curious whether tankless makes sense for your home, we're happy to take a look. In-home estimates are free.

Key Takeaways:

Tankless water heaters heat water on demand using a flow sensor and a heat exchanger, with no stored water and no standby heating.
The heat exchanger is the critical component: it heats cold water rapidly as it flows through, and it's the most vulnerable part in Arizona's hard water environment.
Gas tankless units are the standard for whole-home use in Arizona; electric tankless is better suited to point-of-use applications.
Proper installation requires correctly sized gas lines, manufacturer-specific venting, and condensate drainage. Shortcuts in any of these areas cause performance and longevity problems.
A whole-home water softener paired with a tankless unit significantly slows heat exchanger scale accumulation and is the most effective way to protect the investment in Arizona.