My new house is 2600 sqft, 2 story and we have a hybrid system. The Rinnai tankless feeds into a 40 gallon tank which has a temp sensor on it and a pump that circulates the water through the Rinnai when the temp in the tank drops to low. We also have a circulation pump just for the water lines in the house to cut down on how long it takes to get hot water at any of the taps. This system works very well for us; after a few months of figuring out how to get the settings just right. The line between the tank and the heater has a filter in it, the purpose of it is to prevent the heat exchanger on the tankless side from clogging up.
