Install a proper vapor barrier, either mud or cement board or Shluter the whole enclosure and then throw up the tile, you need to cut it anyway.These guys are full of crap....actually probably crooks.

Such conversion need not comply with the requirements of the following specific provisions of this chapter:  (a) Section 13-196-660 (height limits); however, in frame buildings, four or more levels of living space shall be prohibited and in buildings of ordinary construction, with or without attic living space, five or more levels shall be prohibited;  (b) Section 13-196-050; however, all dwelling units must comply with the exit provisions of Chapter 13-160 except basement dwelling units may have a second exit through a room containing a heating plant; (c) Section 13-196-670 (stairwell enclosures);  (d) Section 13-196-680 (corridor enclosures);  (e) Section 13-196-690 (dwelling separations);  (f) Section 13-196-710 (basement ceiling construction); however, if the basement contains a dwelling unit the entire basement ceiling construction is to be wood lath and plaster of half hour construction;  (h) Section 13-196-720 (heating plants); however, basement apartments are to be separated from heating plants with partitions of one hour construction.

You can build an enclosure for it or buy one.I have a couple properties that have them outside.

Those are the units that have a dryer on top and a washer on the bottom in one enclosure.

Contractor total was $257,684 (labor, rough materials including shower enclosures, new bathtub and toilets).

I invite them to a tailgate prior to the biggest football game of the year. 

I have a friend who has a rental there and has tons of success because you will still get U of M tailgaters even into the colder months 

They'll lay cold, damn towels over the thermostat or the thermostat enclosure if they are too cold.The true challenge is finding a tenant that is least likely to abuse their free oil heat.

That same contractor did the master bathroom upstairs for total cost of $3k, the next bathroom I had the retired handyman remodel with a pre-fab shower enclosure, and the last bathroom I helped a handyman with the tile portion (biggest mistake of the rehab, will never tile again haha).

On this project, we wanted to fit 4 units on the site, with front and rear setbacks, with a specific unit type (town house, family unit), guest parking, common open space, driveway, trash enclosures, utility locations, and other site planning details.