Good to hear of the progress, Dave!
I have a 40 gal gas-fired water heater in my garage...where the darkroom (or dimroom as some alt. process say) will be going in soon (hopefully!) If the water heater fails on me, I would consider building it a little insulated shed attached to the outside wall of the garage for the new one...get a little more floor space (also have the washer and drier in the garage) and no worries about leaks from the water heater. I use acetone in carbon printing, so not having a flame source in my dimroom would be nice. I could use straight grain alcohol (Everclear) instead of acetone...a little for the tissue, a little for me...But I think I'll keep to the acetone and just use a different room for it, or install sort of an exhaust hood that exhausts outside.