Hot Water Heaters: Is proactive replacement the way to save operational costs?

By: Clifford A. Hockley, President Bluestone and Hockley Real Estate Services,
Executive Director, SVN | Bluestone and Hockley

It is expensive to install a hot water heater. Often the cost of installing a fifty gallon electric hot water heater can range from $950 to $1300 when you include a new water heater, earthquake strapping, a new flexible hose kit, a drip pan, disposal of the old water heater, permits and cost of labor. A water heater is a simple device without many moving parts. That is why they tend to have a long 10-12 year lifespan. See below for an illustration.

Regular replacement of hot water heaters is a given for most multi-family investors

Unfortunately, replacing water heaters is a cost that all properties incur at regular intervals. Sometimes in areas where there is a high mineral content in the water, like the mid-west, you might get less time out of a water heater.

In the process of trouble shooting problems with water heaters you may have to replace elements, thermostats, the dip tube and maybe even the anode rod. If you include the labor and the service calls, it make you think twice if it actually makes sense to spend all that labor with multiple service calls to keep a water heater running, or if it is better to just schedule a planned water heater replacement every 9 to 10 years or so.

The benefits of proactive replacement of a water heater include: not spending the money with an emergency response company when a tank springs a leak and/or flood not only one but two or three apartments in a multistory apartment complex, as well as dealing with carpeting, flooring and sheetrock replacement when there is a flood. Oftentimes this loss is excluded by insurance and can become a significant expense burden for a property owner.

Long-Term Client

A long-term client recently reached out to me with details regarding his properties. He inventoried his properties and identified that many of his water heaters were older and inevitably would have to change them out as the elements, thermostats, dip tube, anode and/or casing rust and fail.

Additionally, much to my chagrin he pointed out that at his properties, most of the water heaters don’t have drip pans, a sure recipe for a future disaster. He reminded me that installation of a drip pan with a drain directed to the outside of a building, could save thousands of dollars in repairs. Unfortunately, not all water heater locations are located next to an outside wall, or in a place where you can drain to the outside, so this is not always possible.

Benefits of Proactive Water Heater Installation

Most importantly, proactive water heater replacement is a huge customer service. Tenants will not have a loss to their furniture or personal property as a result of a flood. Let’s also not forget the loss to the landlord in ruined carpeting, padding and subflooring as well as damaged sheetrock. With proactive water heater exchanges tenants will feel valued and consequently may extend their lease term which is an added benefit in this time of ever-increasing labor, materials and turning costs.

Secondly, you avoid overtime costs for both the plumbers and the companies that are coming to your rescue at 3 a.m. when the water heater fails, and water is leaking all over the place. Finally, you can rest easy because the opportunity of a loss due to a water heater leak has been greatly reduced.

Another Option to Consider

The other option is to keep doing business as usual and replace the parts of the water heater as they fail. More importantly, you can track the age and parts failures and anticipate a water heater failure and plan for it. Catching the upcoming signs of water heater problems and possible failure may prevent a flooding incident. Listed below are eight signs of aging out of water heaters and warnings that the heater may need to be replaced in the near future.

Eight Signs of Water Heater Failure

Age: Knowing how old your water heater is helpful when it comes to predicting a water heater failure. Your water heater’s serial number can provide this information. A typical serial number begins with a letter that signifies the month in which the appliance was manufactured. A= January, B= February, and so on. The two numbers that follow the letter indicate the year it was made. For example, C12 would mean that the water heater was manufactured in March of 2012. Once your current water heater is 6 or more years old, staying aware of these other warning signs will allow you to replace it promptly.

Discolored Water: Rusty water coming from your hot water spigot is a sign that the insides of your water heater cold be rusting. Cloudy (or smelly) water can be an indicator of mineral sediment in the bottom of your tank. Mineral sediment or sludge is more common in households with hard water. Sediment can clog the drain valve, slow down the heating of your water, and cause the bottom of the tank to overheat. Overheating weakens and damages your water heater tank.

Hot Water Smells Off: You may notice that your hot water smells strange or tastes funny. Some people describe it as a metallic taste, while others will recall a “rotten egg” scent. These odors have different causes, but both may require some attention.

The smell or taste of metal may come from iron pipes that are leaching the metal into the water. If you have old plumbing, that might be the culprit.

Water that smells like sulfur or rotten eggs may originate inside the water heater. An interaction between anaerobic bacteria in the water and the anode rod can cause this problem.

Cleaning the tank and replacing the anode rod with one made of a different material may be an easy solution.

Noise: Another sign of mineral sediment is a noisy water heater. If you’re hearing rumbling, popping, or banging noises as your appliance heats up, this is an indicator of sludge in the bottom of your tank. As they are repeatedly heated and cooled, the minerals will harden, reducing the efficiency of your appliance.

Leaking: If there’s any visible rust or corrosion on your water heater tank, it will eventually begin to leak. Be aware, however, that the container can rust from the inside out. Even small leaks are a sign that your water heater is failing. If you don’t replace it, sooner or later, you will discover a vast puddle and possibly the rusted-out tank bottom on your utility room floor!

Hot Water Runs Out Too Quickly: Water heaters are supposed to be drained and flushed every year or so. If you avoid this important water maintenance task for a few years, eventually the sediment takes up more space that you would have had for water.

Over time you may start to realize that even though you have a decent hot water supply, it never seems to last long enough. In many cases, if you catch this sign of water heater failure early enough, you can have the tank cleaned out with very little damage from the accumulation.

Water Never Gets Hot Enough: Enjoying a lukewarm shower on a cold day is never someone’s idea of heaven.

If your hot water supply doesn’t seem to reach the temperature you would like, you can always try turning it up a little higher. Be careful not to set it too high, especially if you have small children in the house.

When this does not seem to solve the problem, you might have an issue with the water heater dip tube. The dip tube sends fresh cold water to the bottom of the tank for heating. If the dip tube gets cracked, it will drop the cold water on top, where it will mix with the hot water and cool the water in the tank.

A dip tube is inexpensive and is easily replaced.

There’s No Hot Water At All: When you turn on the faucet and hot water never seems to arrive, the first thing you want to do is make sure your water heater is on. A tripped circuit breaker will cut power to the water heater, rendering it unable to heat the water.

If the water heater is turned on, your water heater could be suffering from a faulty heating element or thermostat.

Without the heating element, you won’t have hot water. The thermostat tells the heating element to turn on. If the thermostat is reading the temperature incorrectly, the heating element won’t turn on to heat the water, even if it’s working.


In summary, there is more than one way to protect your property from the failure of a water heater. Primarily tracking the age and condition are the first steps. Another option is to plan a ten-year cycle of proactive replacement of water heaters before they fail.

In any case you need to make sure that you have good property insurance coverage so that if a water heater fails you have the funds to replace the heater and repair your property. It is also advisable to ask your plumber or maintenance person to buy a water heater with a good warranty. See link to sample Warranty for AO Smith.

Keep the purchase receipts. For a warranty to be valid for the maximum period, the owner must be able to provide proof of the sales date, otherwise, the warranty begins at the date listed on the ratings plate.

To reduce water heater failure risks, establish a tracking system for all of your water heaters and review all of the installations annually for warning signs of a potential future failure.


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