I trained for a long time in my instructor's home dojo and then put one in my garage as well and taught there for several years. So here is my $0.02
Both my instructor and I had a mat area of aprox 18x13 and it worked out pretty good for small classes. When doing stand up sparring at my instructors place we could get two pairs of people at once on the mat. It was tight but you can easily adapt and learn to fight in close. When I taught kids in my garage, I could get 5-6 kids doing basics, excercises etc. etc.
I also used stand up bags (Wavemasters, and kid wavemasters) and stuffed them in the corners around the room. Again they worked out pretty well. And I had a metal shelf system where I kept other pads and such. In time I also taught adults arnis in my garage and over at my instructors place, but there depending upon the drill only 1-4 people can be on the mat area at a time. Also that mat area allows adults to generally do the majority of the katas that we profromed as well.
Mirrors: my instructor didn't use them, I did because I was teacking kids, and I didn't do much sparring in my garage dojo. However in my instructors dojo we did. If you plan to do a lot of sparring than forget them, they will probably get broke, and then you have a potential injury of your hands. In the close in space of a garage type dojo we tended to slam into the walls a lot. In fact at first my instructor had sheetrock on the walls and soon we had holes in all of the walls from us getting slammed and kicked into them. Later he was smartter and when he redid the dojo he replaced the sheet rock with sheets of plywood, after that the problem was fixed. This is why we didn't spar much at my place because, I didn't go to the expense of putting in a wall where my garage door was (like my instructor had) and put plywood on my walls etc. etc.
Flooring: I went and had a canvas/vinyl cover made for the floor and had some thick industrial type foam pad (about 3/4 inch thick) we did alot of takedowns/sweeps and stuff so I wanted everyone safe from injury. Also since we were doing this on a concrete floor there was no give so I needed good padding. I think it cost me about $200.00 for the covering and about $1-200.00 for the foam, boards for the border, screws to hold down the cover and several hours of time. Also the mat was easier to clean than the puzzle mats.
However one thing I hadn't planned on was heat. In TX it gets hot and the sun would come in through the windows in the garage door and heat the mat. Well I would go out there to get ready for class and the mat would be risen up in the middle from the heat (wierd) also it would be real hot to be on.
To heat the dojo in the winter I used a real small space heater, at my instructors dojo they vented the dyer out to the dojo and did laundry. For coolness in the summer I would open the garage door and had a small air mover fan, my instructor would open the entry door and we found coolness outside on the TX heat. Now he has a small stand up fan.
Teaching out of the house was great, I loved it and training at my instructors dojo was great as well. Many fond memories there. Go for it but protect yourself leagally and do it right first, but thinking through your set up for the dojo. If you can go with a bigger place and you want to earn some extra money by teaching than diffinently get a bigger place if you can afford it. If you only have a few students and you don't plan to teach every night, then the small place will be fine (probably).
Mark
Wife and kid free. First it was the need for room for the bikes, then slowly but surely other junk creeps in. Finally I got taken over by EBAY junk (buying and selling) of my wife's. Now I work out/teach in a park. 
