A tankless hot water heater allows for instant hot water. That does not mean that the water is immediately hot as soon as you turn on the tap; it will still take as long for the water to reach the tap as with a tank system. The difference is that a tankless system does not store water and heat it over and over and over again. It heats the water when you turn on the tap, as it goes through the pipes.
If the water heater is powered by gas or propane, it will ignite a small fire and heat the water as it passes by. The heated water travels down the pipes to the faucet. But there are some things you will have to be aware of if you are thinking about installing a gas powered tankless system: first and foremost, the water heater must be vented through an outside wall. This is different from the tank type, where the vent generally goes through the attic. Also, the vent for the tankless hot water heater will cost you nearly as much as the heater system. Lastly, you will need to have a plumber and electrician install this system for you. The reason for this is that the gas and water pipes will need to be rerouted to accommodate the new system, as will the electrical connections.
An electric tankless system is somewhat different from a gas- or propane-powered system; there is a heating element inside the pipe that heats the water as it passes through. The element comes on as soon as you turn on the hot water tap and it continues to heat the water until you turn off the tap. There is no need for an electrical system to be vented. That means that you can place your tankless electric hot water heater almost anyplace you like. The only things you will have to do is get a plumber to relocate the lines and an electrician to connect the heater to the appropriate breakers. An electrical tankless hot water heater will require two or more 220-volt 40 to 60 amp circuits, so it is best if you have a certified electrician install it for you.
If you are thinking about switching over to a tankless hot water system, it can give you just as much, maybe even more, hot water in about the same amount of time. It will also save you money in the long run, because you won't be using the energy to keep heating the water over and over again. It will also take up less space, and since there is no tank of water sitting around, it is a much safer system to operate.