A recirculating pump works with conventional water heater basically like this. There is a small pump that is place near the water heater along with a check valve. You have to have a return line connected to the hot water supply line close to the furthest point in the house. The return line connects to the pump and then into the water heater. Hot water is circulated through the system as long as the pump is operating. Some pumps have a timer so that it only operates during the times hot water is normally used, others, like mine, operate 24/7. There is no wasted water or time waiting for cold water to purge from the hot water line, so you have truly instant hot water. I use a Lange brand pump, but there are other brands out there.
Most operate as Gary indicates. The one I have is one self-contained unit that sits underneath the sink of the vanity furthest from the WH. No permanent plumbing mods required. It has the pump, check valves, and sensor in one box. During remodeling, I was able to put an outlet there, so it was literally a 10-minute job to install:
- shut off the water
- disconnect the supply hoses from the faucet to the shutoff
- reinstall the supply hoses on the outlet of the circulator box
- install new (supplied) hoses from the shutoff to the inlet of the circulator box
- plug it in
- adjust the timer (if using)
- turn the knob to the desired temp
It's been operating for about 4-years now with no complaints. I put an electronic 7-day multiprogram timer on it so that it runs in the morning, and evening during the week, and most of the day on the weekends. It cost a bit more than some other brands, but was simplicity itself to install. The ability to adjust the temperature you want to have available means you probably won't run it as much of the time, either. My shower is closer to the supply point, so I have it set to supply warm water at the sink, while that at the shower is essentially instant hot. It's easy to adjust the big knob on the front to set your desired temp. Redy-Temp.
Well, up here in Toronto I don't think I can get a 40 gal gas tank installed for $500. I will however look into it again, because trust me, I have.