We have one of the large NG Rinnai on demand water heaters.Our H2O
supply from the street comes in at 50-70F depending on the time of the
year. We have never had any low flow issues and it costs very little to
operate.

We did a couple of extra things to help minimize the amount of hot water
that we use, which we would have done anyway, regardless of our choice
to use a tankless hot water heater:

1. We installed a grey water heat recovery device, (basically a decent
percentage of the heat from the water going bathtub drain is transferred
to the cold water supply feeding the showe/bath)
http://gfxtechnology.com/ This was really simple and and not too
expensive to do. The devices are readily available.It seems only natural
after expending all that energy to heat the water, to want to hold onto
the heat for longer than 2 seconds (if taking a shower)

2. We replaced our antiquated washer with a horizontal axis machine that
only uses 15 gallons of water per wash as oppossed to 60. I hate to
state the obvious, but if you don't already have a low flow shower head,
now would be a great time to get one. Obviously, the less water you use,
the less water you have to heat, no matter what the heating costs are.

After all is said and done, it will take some time to recover the
expense of your upgrade no matter how you go. Beside the cost, I would
encourage you to consider just how much you can cut your carbon
emmisions if you go with a tankless unit (or even a storage unit on a
timer). It makes absolutely no sense to have water being kept at
120-140F whilst you are asleep, at work or on vacation. Best of luck,
Mary.