In low volume use situations like this the cost of operation is largely standby loss. Standby losses on a bigger electric tank is 3-5x that of tiny foam-insulated ones. (It's all about surface area & R-value with electric tanks.) Bigger tanks also take more space- the li'l 'uns can live under the sink.
It's not all about upfront cost. $30/year vs. $100-150/year of standby makes a difference. If you don't need the volume, the smaller tank will be cheaper to run.
It would take a large number of years to make up the installed-cost difference between a $2/year standby tankless (like the mini-Rinnai) vs. a $30/year standby mini-tank. While standby losses are extremely low, the efficiency of a tankless isn't all that great in sub-2 gallon draws- figure ~50% best-case, no matter what the EF or steady-state thermal efficiency numbers say. A 0.82EF unit like the mini-Rinnai only truly hits those numbers in the real world if all draws are more than 5 gallons, and I suspect NONE (or very few) of the draws for clothes washing & brush cleaning will pull that much water at a time. High efficiency front loading washers typically pull in less than a gallon at a time, even if the full wash volume is higher. Unless he's cleaning brushes under a steady blast, not a trickle, for several minutes/10s of minutes at a time, it' gonna suck there too. But it'll still beat a gas-fired tank by 2x in this app, because of the high standby losses of gas-fired tanks.
But there are both efficiency & safety aspects to going with the sealed combustion unit vs. a cheaper atmospheric tankless in a heated garage. The combustion-air requirements of the atmosheric unit represents a steady infiltration heat loss to the garage that needs to be made up by the heating system, so it's true standby loss as viewed from whole-house point of view won't appear on the spec sheet. In cool-winter parts of western Canada it will be significant. (In Kelowna or Calgary, hell yeah, in Vancouver or Victoria, not so much.)