I ran a 3-founder startup from my apartment for a year before we got an office and I wouldn't recommend it. Because it's your office, you feel that you must be working at all times, and it leads to burnout. We did become more productive after we'd moved.
We ran a 4-5 person startup from our apartment (and had the servers running in the closet) for a year before we got free office space. I had a different experience where we worked longer and faster when we were all in the same room (my roommate and I slept in the back, which was our area and no one could touch). Once we got a little larger and had reasonable funding, we moved out and got a really nice office with the money we'd saved for a year.
