Smelly hot water is normally caused by four things:

1. High concentrations of sulfates in the supply water.
2. Low amounts of dissolved oxygen.
3. Active sulfate reducing bacteria.
4. Excessively active hydrogen in the water heater tank, caused by anode.

Solutions:

1. Remove the anode, and replace it with an aluminum alloy anode.
2. Shock the hot water heater with hydrogen peroxide (2-4 bottles). Let the water sit for approximately 24 hours before use. The odor will return if the water isn’t used for a few weeks though.