Placing a water heater outside?

[Thomas Kim]

I'm in the process of building a small laundry room (approx. 10' x 10'); however, the water heater is currently in the corner of this space taking up 2.5' x 2.5' of space. I was told by a plumber he could remove the traditional water heater and put a tankless water heater outside; thus, it would open up that 2.5' x 2.5' space for more room.

My question is rather than paying $1k+ for a tankless water heater, is it safe to just move the traditional water heater I have to the outside, but enclosed in a wooden "shed"? Or is my only (safe) option to get an outdoor tankless water heater?

Thanks in advance.

[Mike Wood]

@Thomas Kim Around me, its very common to have gas water heaters outside.  The Lowes & Home Depot even sell metal water heater sheds (they are three sided to be placed against the house).  My first house has them outside and they work fine.  

Not sure about electrical, but I doubt it would be wise to put outside.  For me, I put gas water heaters outside, and electric water heaters inside.