Depending on the location you live in, water heaters can be located outside. The key elements are the elements. If you live in Minnesota, you'd have to build a heated room, completely insulated and vapor barriered, with its own heating system, like a home. But if you live in California or Texas, you'd only need a metal shed. They come prefabricated just for water heaters. You might want to install an electric thermostaticly contfrolled baseboard heater just in case the temp drops below 32 degrees.
Raymond Vin Zant