Should a tankless water heater go inside or outside?

The vent problem mostly goes away. An outdoor model is built to exhaust at the cabinet, so there is no vent pipe through the attic or roof and no intake pipe to run. That also takes the combustion air question off the table, since the burner is already sitting in open air.

Outdoor units still need a few things done right:

• The right model or kit. Rinnai sells a separate outdoor model. Navien says the NPE-2 "can be mounted outdoors using the Navien Outdoor Vent Kit." An indoor unit is never just hung outside as is.
• A mild climate. Navien recommends mounting outdoors "only in mild climates." Phoenix winters fit that well, though the water and gas lines running up the outside wall still need protecting on the few nights the Valley freezes. Our page on whether pipes can freeze in Phoenix covers those nights.
• Power and a drain. Every tankless unit needs electricity for its controls, so an outdoor unit needs power run to it. A condensing model also makes condensate, which has to drain somewhere sensible. See whether a tankless heater needs a condensate neutralizer.

Two things: a vent to the outdoors and enough combustion air. Rinnai's indoor Sensei spec sheet lists both main setups. A direct-vent install uses a concentric pipe or two pipes, and a non-direct-vent install uses "Room Air."

The difference matters. Phoenix's fuel gas code defines direct-vent appliances as ones where "all air for combustion is derived directly from the outdoor atmosphere," with the exhaust going outdoors too. A direct-vent unit pulls its air through its own sealed intake, so the room around it barely matters. A room-air unit breathes the air in the garage or closet, and that is where the numbers get big.

Under the code's standard method (Section 304.5.1), a room-air appliance needs 50 cubic feet of room volume for every 1,000 BTU per hour of input. For a 199,000 BTU unit that works out to about 9,950 cubic feet, far more than a closet or mechanical room holds. When the space is too small, the code calls for openings to the outdoors instead. With two permanent openings, each needs 1 square inch per 4,000 BTU per hour (Section 304.6.1), about 50 square inches each for that unit. With one opening, it takes 1 square inch per 3,000 BTU per hour (Section 304.6.2), about 67 square inches. Those figures count the total input of every gas appliance in the space, so a gas furnace or a second heater in the same room raises them.

Location rules apply too. Section 303.3 keeps most gas appliances out of bedrooms and bathrooms, and a direct-vent unit installed per its listing is one of the exceptions.

At HQ we measure the room and check every gas appliance that shares it before an indoor tankless goes in. Then we set up the combustion air that unit's listing calls for: a sealed intake to the outdoors on a direct-vent model, or properly sized openings on a room-air model. Skipping that step is how a burner ends up starved for air, which can mean error codes, soot and carbon monoxide risk. Our page on whether a water heater can cause carbon monoxide explains why that air supply matters.

Size is part of the same visit. In our experience, a gas unit near 199,000 BTU per hour covers most Phoenix homes, because our incoming water is warm and a smaller temperature rise lets a tankless unit deliver more of its rated flow. Navien lists 8.7 gallons per minute at a 45-degree rise for the NPE-240A2. A unit that size usually needs a larger gas line than an old tank did, which the downsides of tankless water heaters covers, and what size water heater you need walks through the flow math.

• Garage is crowded, or the vent route to the roof is long? Outdoor usually wins.
• No good exterior wall near the gas and water lines? Indoor, with direct venting.
• Replacing a tank in a closet? Indoor can work, but the combustion air and vent have to be redone for the new unit, not reused by habit.

Whichever way you go, an install like this is gas and venting work for a licensed plumber. We give free estimates and an upfront price before any work starts, and our water heater service page covers the rest of what we install.