amy2202,

We need a little more info: What are your goals? Do you want to save energy(enough that you would spend significantly more money for a water heater)? Do you need continuous hot water? Do you have any multi-head showers or large tubs?
Are there any space issues?

jake, We are going to be using the home as a second home with the goal of it being our retirement home. I want to save as much energy that is logical but don't want to blow our plumbing budget on a water heater, but also looking at the long term numbers. We will not have any large tubs or multi head units. The house will be on pilings so getting hot water to the top floor bath is a concern. ( the top floor will be the third level, the bottom level will be storage with future plans to add bath and rec. room)