A hybrid tank and tankless hot water system with an inlet bypass and an outlet bypass are configurable between a hybrid heater configuration and an on-demand configuration. In the hybrid heater configuration, the inlet bypass supplies cold water to a cold water inlet of a storage tank and the outlet bypass supplies hot water from an outlet manifold to a recirculation inlet of the storage tank. In an on-demand configuration, the inlet bypass supplies cold water to a cold water manifold for directly providing cold water to hot water heaters and the outlet bypass supplies hot water from the outlet manifold directly to a system hot water outlet. In the bypass configuration, a storage tank and/or recirculation pump are fluidically isolated from one or more hot water heaters to facilitate their maintenance, repair, replacement while still supplying hot water on demand from the hot water heaters.