In the pilot episode, Chico cleans up Ed’s garage and then moves into a beat-up old van parked in the back corner. He resides there for the first two seasons. At the start of the third season, Chico briefly moves out and when he returns, he noticed that Ed sold the van (which never made any sense to me). Ed then agrees to turn his storeroom into an apartment for Chico. For the remainder of the third season, Chico lives in that room, which is a pretty nice setup, that includes his own private bathroom.

After Chico left, however, his apartment is turned back into the storeroom. It’s as if the writers just ignored that it was ever a little apartment. When Raul moved in, he could have lived in that room. Instead, he was upstairs in Ed’s small bedroom (sharing a bed in the first few episodes). Later in the season, Monica moves into a new (broken down) van in the corner of the garage. SHE could have lived in Chico’s old apartment. I don’t know why it was chosen to retcon that storeroom being an apartment.