How does a tankless water heater work? Tankless water heaters heat water directly without the use of a storage tank. When a hot water tap is turned on, cold water travels through a pipe into the unit. Either a gas burner or an electric element heats the water. As a result, tankless water heaters deliver a constant supply of hot water. Do tankless water heaters run out of hot water? Understanding the operation principle of tankless water heater, we can believe that that system can't run out of hot water. However, if you are taking a shower and running the dishwasher at the same time, the water heater will not supply enough hot water for multiple uses. What're tankless water heater advantages