I’d ask you to at least consider replacing your gas hot water heater with a heat pump hot water heater. Good for the environment and will save you significant money at the same time.
Many places (and just about everywhere without a basement or attached garage) have water heaters closed up in tight spaces. A heat pump heater won't work there, but if you add some vents to the door so it can exchange air with the rest of the house, they're just fine. Or, depending on where you live, you might consider venting it to the attic - if you have an attic that runs hot, "extracting heat directly from it into the hot water and then cooling the attic" is a good use of time.