You didn't indicate whether you had gas or electric. On either one, you might be looking at a utility upgrade to enable a tankless plus, they have more maintenance requirements, especially if you don't have soft water.
A 40-gallon tank won't cut it trying to fill a large soaking tub. But, depending on you inlet water temperatures, doing it fast with a tankless might require a much bigger unit.
You need to look at your maximum simultaneous useage requirements to size the unit along with your average and peak inlet temperatures.
You might want to consider one of the heat pump water heaters...a side benefit is it cools the space around it by extracting the heat and putting it into the water. This might be a nice side benefit to essentially cool the garage while heating the water rather than the opposite.
Read some of the other threads to gather up some ideas.