A water heater is provided by a refrigerant cycle, in which the gas cooler is utilized to heat the water. A drain is incorporated into a water circuit for draining all of the water outwardly of the circuit when the system is shut down. In a preferred embodiment, a water outlet of the gas cooler is at the vertically lowermost portion of the water circuit. A drain valve is placed in this vertically lowermost location such that the water can be easily drained.