Glockster35,
Welcome to the wonderfull world of shotguning. First off let me say that Dave is once again, as always, right on. I just wanted to add to his insights.
There is no doubt that you can put together a very good "Combat" shotgun for well under $500.
If you do a search of the web, specificlly of the Wilson Combat / Scattergun Technology web site you will get some good ideas about what is being done with the art of social shotguns. As I've commented on in another thread Wilson Cbt. makes a fine shotgun. I just believe they are overpriced.
I would start out with a Remington 870 in 12 guage. Any large chain store such as Wal-Mart sells the Express version of this gun for around $260 brand new. That will give you a platform to build off of. You should be able to find some good deals as well on used 870's at pawn shops or through a private sale.
IMO ideal 870 will have a 3" chamber, 18" barrel either with or without iron sights - depending on what your long range plans are. If you think that eventually you will want Ghost Ring type sights get the plain barrel.
If you have any mechanical skill at all you should be able to put everything together yourself with the exception of maybe drilling and tapping the receiver for ghost ring sights if you decide you wanted them.
Then as funds and time allow I would add the following items, in no certain order.
Surefire front end light. For me a light is a MUST HAVE item on any firearm of this type.
Oversized safety - there are quite a few people who will disagree and say the factory safety is fine but my preference is clearly for the oversized ones.
Replace the factory shell follower with some type of hi visibility follower that is advertised as not allowing the spring to bind. I've yet to have a spring bind with the factory follower but what the heck. Also consider getting a stronger aftermarket stainless steel magazine spring at this point.
I like ghost ring sights on SGs. They are one of the best things I've added to my "social" SG and would say get them.
Lastly a good tactical sling is something to consider. I like the CQB solutions sling. While a sling can get in the way if you're in very close quarters I like the idea of having one on my gun. A tactical sling allows me to use one hand to open doors or more commonly scratch myself as the need arrises
I've gone back and forth on the issue of magazine extensions. I've had one on my gun, taken it off, put it back on, and taken it off again. Personnaly mag. extensions are a coin toss. I like the idea of them, but my gun is set up currently without an extension. If you do get an extension I would definately get a good magazine tube / barrel clamp. The military has a GREAT clamp that I wish I could get one of. It fits right at the end of the barrel and mag tube and IIRC has something to do with alllowing a bayonett to be attached to the Shotgun. Not that I would, or suggest anyone should put a bayonett on their SG.
Anyway hope that helps.
Rob