Best bet is to vent it out of the soffit. You'll want to bury the vent hose in plenty of insulation, like 24" of insulation.

My mom has hers vented out a soffit, but it wasn't properly insulated. During the winter you could see a line in the snow on roof where the vent was run. This melted snow caused ice damming, leading to more problems. The duct was insulated, it was under about 12" of blown cellulose insulation, still wasn't enough. I put 2 layers of R20 on top of the vent, no more issues.

An easy test to check the dip tube is to open the drain on the bottom of the tank, open it quickly and open it a few turns, you want good flow. If the dip tube is good, you should get cold water after a few seconds , if the tube is bad, you won't get cold water.

The dip tube brings the cold water to the bottom of the tank where it get heated. If it's faulty, the cold water goes in at the top of the tank, then out the outlet line, giving warm water instead of hot water.