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advice for small studio for fun and maybe profit? - edited

Note: I have done some searching on this site and found a lot of good information, so I've edited this post to get to more specific questions. I want to be able to do rather minimalist analog recording for singer/songwriter types, jazz combos, and maybe even classical quartets and such. Here is what I have:

Building my first "studio"

Hello all. I've been waiting to jump into the world of recording for a while now. I don't have a lot of money, and it will mainly be used for my own purposes (not trying to get paying customers or anything! at least not for a long while) so I won't be buying top of the line equipment. I want to know what you guys think as far as where "budget" gear turns to "crap" gear.