I agree, tankless outside is best but you need gas. Many of the homes north of 44 only have electric and although there are electric tankless heaters you need to upgrade the electric line since the existing 30Amp line is not large enough and i don't think they are made to be installed outside.
That said, Rheem does sell a unit that has a built in water detection and shutoff system called Gladiator. It's only a little more expensive than the regular tank unit but solves the water leak problem And lets you control the temperature of the water on a schedule and has diagnostics to let you know what's wrong or which heating element failed for example. This unit is the same size as the one i have now and i think i'm going to just get this one.
I discovered after more measuring, that the Marathon is 28 inches wide and we only have 22 1/2 so it's not going to work without some major modification to the HVAC door in the garage.
The story you mentioned about the hot water tank leak and the owners covering it up is very disturbing because it's very hard to tell unless there is something noticable for the home inspector to see. There is no way to open the walls and look for mold for example. Even if they checked with a moisture detector the wall is probably dry but still has mold, etc... I believe you can sue the original owner for not disclosing the problem according to the wording in the contract, but it's only up to a certain amount. I would pursue this if i were you. It also troubles me that they didn't use their insurance to cover the costs since this is definetly covered in "normal" homeowners insurance.
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