Tankless water heater. Either gas or electric. I prefer electric but not everyone has the wiring to run one. They actually use less energy than a standard water heater, but they require an additional line/circuit breaker.

Why heat water you aren't using?

All the hot water you want and it frees up closet space. Win-win!

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“Whatever story you're telling, it will be more interesting if, at the end you add, "and then everything burst into flames.”
― Brian P. Cleary, You Oughta Know By Now