What's the next step in troubleshooting my electric water heater?
Here was the solution:

For some reason, the circuit was showing a reading of 120v on the multimeter. This led me to believe it was good. Since it is a 120v water heater, I went ahead and hooked it up to a nearby circuit which I KNOW was good. Sure enough, we had hot water within 45 minutes. 

I am not sure how the multimeter read 120v if the circuit was bad. 

Apparently water heater elements need extremely consistent and constant supply of power or else they won't heat up. 

Problem Solved. Thanks for all of the pointers and advice.