Recent advances in technology have given even more power to the home recording enthusiast allowing professional results on a manageable budget, and you can build it all on eBay.

Every successful project needs a plan - this is the first step to building your home studio as well.  Make a plan that will suit your needs.  Careful planning can be a big money saver and help organize your thoughts. Set a budget and stick to it.  If you really want that mic but can't afford it, don't buy a cheap substitution.  Save up and buy it.  On the other hand, don’t be fooled into thinking that price ultimately dictates quality as there is some great high quality equipment on the market which is affordable as well. Here are 6 points to consider when making purchase for you home studio.

Computer

Effective planning can save a bundle.  If you have a little experience inside a PC, you can purchase parts individually for a fraction of what the big name retailers charge and build a superior system.  First off, buy the most PC you can afford.  If you expect any kind of multitrack performance using effects look for a PC with at least a 2 GHZ processor, 1 gig RAM, and a 7200 RPM hard drive.  Also take a look at the chip set of the mother board, Intel and ASUS seem to get the most positive reviews.  You'll also want a few USB ports and at least one IEEE 1394 port (also referred to as Firewire), which leads us to our next point...

Audio Interface

This unit is a digital audio convertor usually connected internally in a PCI slot or externally using a USB or Firewire port which sends your audio into the computer. External devices usually offer more functionality and offer the advantage of using with a laptop.  While USB 2.0 offers higher transfer rates (on paper anyway) actual performance shows that Firewire is still the better choice for consistent and fast audio transfer especially in multitrack (greater than 2) applications.  Also consider no latency monitoring. No or zero latency monitoring routes incoming signals directly to the monitoring output which avoids the delays it takes audio to travel into your computer then back out.  Lastly, ensure the unit can provide phantom power if you plan to use a condenser microphone (see microphones below).  Consider products by EMU, M-Audio and TASCAM.

Software

Most interfaces are bundled with some type of recording software such as Cubase LE or a version of Cakewalk's SONAR.  These applications are surprisingly full featured and contain many of the functions of their most expensive cousins.  Take advantage of this opportunity to save some money and build your knowledge.

Microphones

Microphones are highly subjective and it's always best to trust your ears.  However, there are tried and true "standards" which will give you good results at a minimal expensive.  When starting out, consider purchasing 2 mics a dynamic and a condenser.  For dynamics, there have been countless recordings made with Shure's SM57. It's good for micing electric guitars, percussion, and even vocals.  In the world of condensers, a resent explosion of Chinese imports have significantly lowered the price on mics and there are several in the $100 range which receive positive reviews.  Consider models by Audio Technica, MXL, and Studio Projects.  Don't forget to purchase stands and cables as well!

Monitors

Gotta hear what you just recorded right?  You'll need a good pair of headphones and a set of near field monitors which offer a flat response, that is they don't unnaturally boost or cut any frequencies.  Listen to as much music as you can using these monitors to become familiar with there sound and how they sound in your room.  This will make mixing much easier.

Room treatment 

While this won't hinder experimentation and learning, it is the most over looked aspect of a home studio and can be the "missing link" in obtaining a professional sound. If you can't afford professional acoustical treatment, carefully placed packing blankets and large pillows can make a big difference in taming the reflections of a room.

In conclusion, building a home studio can seem overwhelming. But with proper planning and research, you'll save yourself big money (and headaches). 

Bidding tips: 

You can often find a better price on Dutch auctions.

Always bid on the item with the lowest (or free) shipping.

Don't overpay.  Use the advanced search options to look at completed auctions.  This gives you an idea of what a far price is for an item.

Good Luck!