Tankless water heaters are a great, cost effective way to deliver hot water to your home. They are energy efficient because they only heat water as it is needed. They also are easily controllable because the water temperature can be changed instantly. Rinnai even offers a wireless control that can dial up the temperature of your water heater from anywhere in the house.
As good as tankless water heaters are though, they can not overcome the problem of the physical distance between the water heater and the bathroom. When you turn on your hot water, all the water that is in the pipe between the faucet and the water heater has to drain out. As a result, the water runs cold until it is replaced by the hot water being fed by the water heater.
There is however, one other advantage of a tankless water heater that can help in this situation. Tankless units are very small compared to traditional water heaters. As a result, they can be installed practically anywhere.
It is easy to use multiple tankless units to divide your domestic hot water supply into two zones. One tankless water heater can be fed from the basement or first floor where it is a short distance to the kitchen and powder room. Another tankless water heater can be fed from the attic or a second floor closet, where it is just steps away from the bathrooms. With more than one tankless water heater unit, you can have both a cost effective and convenient source of hot water.
If you do decide to install a second tankless water heater unit, now is an excellent time. The Department of Energy is offering a energy tax credit to offset installation costs.
Finally, there is one technical recommendation I have for you to pass on to your brother in law. To be able to deliver the correct amount of gas needed to instantly heat water, tankless water heaters typically need gas lines larger than their inefficient tanked counterparts. If your brother in law's builder used an undersized gas line, there may not be enough gas pressure being fed to the unit to get the water to heat properly. To find out, I suggest contacting a service professional or the appliance manufacturer to double check that the installation of the tankless water heater was done correctly.