Electrical wiring question for instant water heater
You are allowed to use a white wire for a hot wire, but you need to mark it with tape at both ends.  The tape can be any color besides white, gray, green or copper, as those denote other things.    

If you want to be fancy and use wire natively colored the official colors, use 10/3.   Wire-nut or tape the unused neutral.   

If your heater is 16 amps or less actual, 12 AWG wire will suffice unless the wiring is a very long run.   However, you may be disappointed by the hot water output.   I would go for a larger heater that requires 10 AWG.

Just as an aside... marking wires is not allowed in the other direction.  You can't mark a colored wire to be neutral, and you can't mark any wire to be a ground (though you can strip all the insulation off.)