Re: Garage Dojo
A number of years ago I trained with a small group in the Bay Area in a long ONE car garage. When ATM started running the 'Jord's Storage Locker Aikido' series I thought it might be for real - well, until they got to the gaijin hakama and other silly stuff.
Insurance - take the advice and look into it. Our dojo insurance costs us about $500/year, which isn't much when spread out over everybody's dues.
Zoning - might be a problem, or not. It may make a huge difference what you call the dojo - a school that charges money for instruction is definitely a business but a private martial arts club that does not demand money is an entirely different animal (and, by what you said, an accurate description of what you are doing).
Do you have plenty of parking? As long as your classes don't annoy your neighbors you ought to be all right.