Before I bought it, I would make sure that the AC and heat work, no noise from the rear-end, transmission working well, finger check the rotors, look for leaks, etc. How is the turbo? These are great cars, but you will be behind the eight-ball if you have to fix more than the engine.
BTW - you are probably looking at more like $7 grand for a new engine by the time you replace hoses, motor mounts, belts and other misc. items.
For the same investment you can get a pretty good 300E. You can probably find a 300D with a good engine for $4000.
Went through this exercise when our '82 300D died.
Great cars, but buy right!
Falls Church VA
'86 300E 5 speed
'95 C220 (wife's car)
'98 Porsche Boxster
Past: '79 280E, '82 300D (18 yrs), '77 240D,