Location

• An indoor tankless water heater is installed inside your home. An outdoor unit is installed outside the home and is designed to withstand the elements.
  
  

Space

• An indoor tankless water heater takes up space inside your home, often being installed in a nook or closet. Being outside, an outdoor unit frees up space inside the home.
  
  

Weather Protection

• Outdoor tankless water heaters have freeze protection for those who live in cold weather areas. However, there is no protection for the exposed pipes leading into the tank, so these must be insulated somehow. This is not a consideration for an indoor model, which is not exposed to the elements.
  
  

Venting Requirements

• Tankless water heaters require specialized venting. Indoor tankless water heaters must be installed so water created by condensation can be drained away from the heater. This requires the venting to be attached to a drain. Outdoor models have short exhaust venting, which minimizes condensation.
  
  

Oxygen Requirements

• Unlike storage heaters, because of the increased oxygen requirements, an indoor tankless water heater cannot be installed in a small closet or nook without expensive direct venting that draws air from outside. This is not a consideration for the outdoor unit.