When a hot water faucet is first opened, cold water will flow through the tankless unit to cause the unit to activate the gas burner or electric element. As tankless units do not heat water until water is actually flowing through the heater, because most tankless units do not store any amount of hot water, the initial water exiting from the tankless unit will remain cold until the burner is fired and achieves full output to instantly heat the water up to the desired temperature. As long as water continues to flow through the tankless unit, it will continue to heat the water to the desired temperature.
Some tankless units are equipped with a recirculation pump and a small buffer tank to store a small quantity of hot water to cause heated water to be instantly supplied to the hot supply lines once a hot faucet is activated.