The space you need for a recording studio is largely dependent on the type of artists you'll be recording. If you're going to be recording full bands with multiple members playing live, then a large main room is desirable. You may even want to have room for a couple of isolation booths for those times where you want to avoid excessive bleed into adjacent microphones. If, on the other hand, you're catering to solo artists who'll be multitracking their own parts, then a spare bedroom will offer ample space.
Processing music files can be very demanding of a computer, so a studio setup really requires a designated computer purely for this purpose. It also requires at least 2BG of RAM to operate smoothly. If your budget doesn't allow for an extra computer for recording, then you should probably at least streamline your machine a little. This means removing or disabling any old programs that you seldom use to free up valuable space and memory.
The market is saturated with recording software brands for both Mac and Windows-based recording systems, and most of them will do a fine job. Choosing one is just a matter of preference, each coming with their own interface layout and their own learning curve. Of course, for it to work at all, your studio needs a piece of hardware known as an interface. This is the means by which audio signals will be transferred to the software program you'll be using. These interfaces also have in-built pre-amps that can boost the level of low-output devices such as microphones to a level suitable for recording. These devices can be small budget models with just a couple of inputs (suitable for solo performers) or more expensive multi-input models necessary for recording an ensemble.
Even though large state-of-the-art studios have an array of ultra-expensive microphones tailored to specific recording tasks, a low budget studio can function perfectly well with just a couple of versatile models in the microphone cabinet. Large diaphragm condenser mics can be had for less than $200 and are perfect for capturing all manner of vocals and acoustic instruments. For louder, more explosive sound sources like drums and electric guitar amplifiers, a solid dynamic mic like the legendary Shure SM57 is a must. Condenser mics are notoriously sensitive and fragile and aren't sturdy enough to withstand the extreme sound pressure levels (SPLs) exhibited by such instruments. Between them, these two microphone types should cover most recording duties handily.
When large music files are stored, a computer's hard drive can fill up quickly, so external storage devices are a must for a studio. It also serves as a back-up in case of computer failure, and gives portability to music files should you desire to take music files to outside locations for collaborative or mixing work at other studios.
Studios have to be equipped with flat response monitor speakers for an accurate representation of the music at the mixdown stage. Regular stereo speakers will always color the sound somewhat, depending on the speaker type and size of the enclosure. Some are bass-heavy, some have a more trebly sound. Either way, it makes it difficult to get a true representation of how the music actually will sound over a variety of playback systems. Like microphones, elite monitor speakers can be incredibly expensive, costing thousands of dollars, but budget models can be found in the $200 to $300 range and can do a capable job.