How They Work
When a hot water tap is turned on, cold water is drawn through a pipe into the heating unit. Either a gas burner or a high-power electric element heats the water as it moves through copper tubes. The hot water then flows directly to the tap. Demand water heaters deliver a constant and unending supply of hot water.

If that sounds too good to be true, here is the catch:  The supply is unending but not unlimited. Demand water heaters can only raise the temperature of a given volume of water by a certain amount as the water flows through them. Thus the amount of hot water produced is limited by the volume of water that can physically pass through the heater and by the water’s starting temperature.

Typically, demand water heaters provide 120 degree water at a rate of 2–5 gallons (7.6–15.2 liters) per minute (gpm). Most showers heads have flow restrictors that limit the shower to 2.5 gallons per minute. (Unrestricted showers use 5-10 gpm.) Gas-fired demand water heaters can produce higher flow rates than electric ones. Sometimes, however, even the largest models cannot provide enough hot water for simultaneous uses. For example, taking a shower and running the dishwasher at the same time can demand more hot water than a single unit can deliver.