Brown hot water?

Draining the cylinder is not a cure so you need to establish what's causing the discolouration? A water test is not that expensive and should show if it is bacterial from the roof or corrosion from the cylinder. I saw this on the net "The most commonly highlighted cause of copper corrosion is the improper grounding of electrical appliances to the copper plumbing system" Have a look at your earth grounding rod and give it a few hits with a sledge to make sure it has good ground connection.

TBH it wouldn't surprise me if it isn't grounded at all, the previous owner was apparently a cheapskate and not very good at DIY so I have been constantly repairing things since we got here. I "assume" they got a plumber in when the cylinder was replaced, but it wouldn't surprise me if they didn't as we already found evidence a non plumber had a crack at the Ajax valve.

well it's easy to check, go to your meter board outside and look for a green wire and a piece of 20mm rod sticking out of the ground nearby.

I managed to drain the water cylinder on the weekend, not the most encouraging sign.
Start of the tank:
 

End of the tank
 

I seriously doubt that is from debri, looks more like rust to me. I dont think Copper would cause that kind of colour or grit either. Guess i will have to start looking for some steel fittings hidden away somewhere? 

Any thoughts?

you would need a large amount of steel in the system to get that sort of sediment? Has there been any alteration of the system by the previous owner? Has water always been drawn from the roof as this looks like typical sediment from a deep well supply?

As far as i can tell it has always been roof collection, i cant vouch for how well the tanks have been cleaned in the past but they look ok at the moment. As i mentioned the cylinder is probably about 5 years old by the looks of it, so not sure what else it could be.

Did you check the earth rod as suggested? Just to recap, it only appears in the hot supply and not the cold? Do you have steel spouting? if so it could be corroded but that would affect the cold as well. I feel that you need to do a water quality test to see what it is.

PVC gutters and spouting, so far looks like plastic pipes from tanks externally and then copper once it gets indoors but I need to do more checking. 2 of the copper pipes downstairs between the filter and HW cylinder have earthing clamps on them, and then someone has painted over them but i would presume that shouldnt stop any electrical connection. I havent had a chance to check outside earthing though. Yes just the hot water, cold is nice and clear.

Rheem have come back and said the cylinder is apparently steel and out of warranty, it apparently has an anode inside it that should be checked by a plumber as it may need replacing. Unless i am mistaken i dont think if the internal tank has started rusting then replacing an anode in the tank is going to stop it. I guess i need to find some kind of test to confirm it is rust?

Finally! at last we are getting somewhere, those Rheem cylinders are vitreous enamel lined steel tanks and the enamel lining breaks down over time resulting in rusty water. It is only a matter of time before it bursts so you need to do something soon. It's not too hard to replace it yourself, even the electrics is only two wires. The problem is you will have to fit a tempering valve if you don't already have one. I would guess that your water is slightly acidic hence the early failure. The latest cylinders are stainless steel so should last a lifetime. No point replacing the anode, it's too late for that. Your other option is to install a gas continous flow heater, usually placed outside the house. In the meantime, consider drilling a hole in the floor under the tank in case of leakage!

lol i don't think that is an issue, still has the hole in the chipboard floor from the PO replacing it last time after it leaked.

*Sigh* more money to spend fixing things that weren't done right. I suppose it gives me a chance to fix the floor under the tank and maybe convert to mains pressure... 

Thanks for your help and persistence, I've never had these kind of plumbing issues before. Usually it was limited to a blocked drain, S bend or the kids blocking the toilet.

Would a copper tank end up corroding as well if the water is acidic?

copper should last a long time, they only made the ones you have due to copper shortage and price. However, the best way forward for you is to install a gas continuous water heater . You could then sort out the mess of pipework and gain more space in the house. This will also give you mains pressure hot water. otherwise get something secondhand from Trademe and keep your fingers crossed!

Ah, a correct diagnosis at last!

I mentioned the anode in my first response. It's now too late to just replace that and hope for the best.

Yes, copper can corrode with acidic water. And I have also said in other posts, rain water is indeed acidic—it dissolves atmospheric carbon dioxide as it falls, and the result is dilute carbonic acid. Most cylinders are copper, but for some reason stainless steel cylinders are sometimes (usually?) specified if you're including a wetback in the set-up. 

I have no experience with the latest generation of instant water heaters, but I have seen claims that they are an improvement on the older ones, which were horrible damn things. Those could not heat the water to a fixed temperature every time, but rather they would heat the water through a certain range of temperature which depended on the flow rate of the water. That meant that the temperature of the water coming out of the tap varied according to
a) the temperature of the cold water going in to the heater, and
b) whether any other tap on the system was open, thus reducing the flow rate so the water stayed in the heater longer. 

If you're going to be making big changes anyway, you might consider installing solar panels on the roof. The capital cost is not insignificant, but neither are the savings long-term.

Good luck!
 

Well new cylinder was installed yesterday, i paid a plumber to put it in as i wanted to make sure it was all functioning properly and i dont have a lot of plumbing experiance. Also had a few other jobs i wanted doing while he was there so worked out well. Ended up just getting the same cylinder in the end as there was a communication issue (i misread his text) and the SS options arent as easily available. Also the SS ones are mostly a lot taller so easy on pipework to just go again. No worries though, will just make sure i stay on top of getting the anode replaced.

When the old tank was decommissioned i dug out the anode from the tank, it still had the insulation foam over the top so obviously had never been changed. I will try to remember to post a photo later but there was pretty much just the center stick remaining which had almost corroded through, not sure what diameter the new anodes are but would be interesting to compare one day.

So nice warm and clear water in my morning shower today, all happy! But a largish unexpected bill coming so not all happy...

Thanks again to you all for your help with decisions and diagnosis!

Good result and we all learned from your post.