There is a rod inside the Water Heater called the Anode Rod.
The Anode Rod slowly deteriorates over time, creating a
horrible odor in the Hot Water. The Cold Water will be perfectly fine and the Hot
Water not so good.
It is highly recommended that the Anode Rod be removed from the Water Heater. The
original Anode Rod is made
of magnesium which flakes
off, leaving behind black particles. I highly recommend
replacing the existing rod with
a Aluminium Rod.