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First let us look at the engines available, because this is much likely a thing which is most difficult to change. I will sort them by engine Code and not size of the engine, so do not be disturbed.
M20: Available with 2.0l (M20B20) with 129hp and 2.5l (M20B25) with 171hp. These engines were used from 12/1987-09/1989. A smooth inline six engine with great smoothness, like no other engine at that time. This engine has also its appearance in the E30 (for example mine has it…slightly tuned). Sadly the engine has its weak-spots. It has only 12 valves (every cylinder just one intake and exhaust valve), the cylinder-head breaks if it is not driven warm carefully mostly between cylinder 5 and 6, which is expensive, so becareful. The next thing is the timing belt. It is required to be changed every 60.000 km and that interval needs to be followed exactly. There is no way around it. Expensive and a mechanic will make you poor for doing that, it is not an easy Job (it took me 6 hours… I am not a mechanic, but not bad at doing stuff like that either). So allover not the best choice in your E34. There were Diesel variants of that engine (M20D24) out there….not worth mentioning, just do not buy an E34 Diesel.
In EU last date of production e34 with m20 engine is june 1991. If you take care about your car it isnt expencive at all. M20 is old school tehnology engine, adjustable rockers, one cam, 2 valve per cilinder. its not a race engine. if you want to drive m20 you need to be ready to ride engine who needs more care then other bmw engines. for example, every 50tkm new time belt kit, every 8tkm oil change, every 20tkm adjusting valves, every morning need to wait min 10mins to warm ti. And I agree about diesel engines.
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