We built with option 3, using a 120v, 6 gal water heater in a small space in the Master Closet, feeding the Master Bath and Laundry room. It works great and is efficient as it never heats cold water since it's being fed with already hot water from the boiler.
Except...I'm seriously thinking about changing it to 8 gals.
For the shower in the winter, it's instant hot water for about 6 minutes, but since it's near 100 feet from the on-demand gas hot water boiler in the garage, minutes 6 and 7 are luke warm, then it's back to forever hot from minute 8 on...
I think an 8 gal would allow sufficient volume for mixing the cold water in the 100' run plus bridge the minute or so for the garage on-demand to generate hot water.
It's less noticeable in the other 3 seasons when warm rather than hot water is generally used.
The footprint is minimal, and the 8 gal wouldn't be much bigger, and shouldn't cost much more on average to operate.
The boot was included for size reference in the 1st photo! And the reflected green light is visible from the cubby hole behind the door in the 2nd photo.
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