Tankless water heaters are the best thing since duct tape!
All gas and propane water heaters (whether natural gas or propane) must be vented. Some tank style water heaters are vented by a flue straight up from the top of the unit. Others are "direct vent" and can be vented through a side wall with minimum clearances and flue requirements. There are tankless versions that can be installed inside your home (more cost due to venting and cutting a hole in the roof) or installed outside. Usually we install these units on the outside of the foundation wall near the gas meter to save on running a new or a longer gas line.
We've have a tankless unit in my personal home and really enjoy the savings and convenience. A tankless unit costs three times the cost of a traditional water heater. Most folks don't replace a water heater until it fails; so they are buying one-third the total cost of a tankless heater anyway.
With tankless, you never run out of hot water as long as you have a water supply and natural gas or propane. You do not heat water all day, you only pay to heat what you are actually using; and there is not a storage tank somewhere that will ultimately leak.
In my personal home we checked the energy costs and within four years saved enough to offset the additional two thirds the cost for the difference in equipment and installation. From now on, my family will ALWAYS have a tankless water heater.
There are many brands. We will only use Rinnai and have installed quite a few over the past few years as they have become more and more affordable. If you have a water heater in your attic it would be a great time to relocate it to avoid future problems.
There is no problem with installing a tankless unit on the outside of your home. They come in a weatherized metal cabinet that is actually quiet attractive. See
Tankless Water Heater, Water Heater, Tankless Water Heaters Gas - Rinnai for photos of various installations.
I can't begin to tell you how pleased we are with our decision to install a tankless water heater. Having enjoyed this appliance for several years, I cannot imagine going back to a tank style water heater at any time for any reason. Just call me "Tankless Trent" 'cause I am a convert who will not go back to the "tank" side.