Once you've decided on your fuel type, you need to figure out what size water heater will give you enough of what you need. If you're replacing your heater, give some thought as to whether or not your previous model consistently provided enough heat. If it didn't, then you're going to want to upgrade to a larger size. Also give some consideration to whether or not your family has any potential to grow over the next decade. If you have plans to start a family or if your mother-in-law is going to be moving in with you, you'll want a larger heater as well. After you've taken all that into consideration, you can appropriately size your new heater.
For storage tank heaters, there are two important factors in sizing: the amount of water it holds and the recovery rate, which is the amount of water it can heat in one hour. The recovery rate is displayed as First Hour Rating (FHR) on the Energy Guide sticker. Generally speaking, if you live in a two-person household, you can get away with a 30 to 40 gallon heater. Three to four people require a 40 to 50 gallon tank, and if you have five or more in your house, go with a 50 to 80 gallon model. Gas heaters have a greater FHR than electric units, so they have smaller tanks with the same EF rating.
To get a more specific idea of your needs, estimate your peak hour demand and find a heater that falls within a couple of gallons of this number. Here are estimates for the number of gallons used for each household task:
[source: U.S. Department of Energy]
Multiply these numbers by the amount of times they occur in a peak hour to get your total gallons used. For instance, if you have three people in your household that all take morning showers, you'd multiply 20 gallons by three to get 60 total gallons used. If you also run the dishwasher in that same hour after your shower, add another 14 gallons to give you a grand total of 74 gallons. This is your peak hour need and what you should look for on the Energy Guide sticker. If you have limited headroom where your heater should go, look for "lowboy" models -- they're shorter and bigger around, but have the same capacity as their taller cousins.
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