Here are some common signs that your water heater might need to be replaced. Cold/Lukewarm Water: From a broken thermostat, heating element, or a tank that's too small for your home. Rusty Water: If you see rust in the hot water from sink and bathtub faucets, it's likely that there's rust inside the water heater tank lining and it needs to be replaced. Water Leaks: A leak from a water heater doesn’t mean that it needs to be replaced. However, you will want to fix any leaks as soon as possible and then determine if a repair or replacement is needed.