Sounds like a fun project, I believe its been done before and isn't TOO hard, depends how far you want to go with it. One problem with w123s and w126s in terms of performance is their tires are pretty skinny and due to the suspension design you can't fit much bigger/wider wheels and tires without modification--but obviously keeping it stock is out the window so you've got options. I've had trouble getting my w126 to hook in the rain, and usually chirps the shift to second gear in the dry so you'll want to keep that in mind for your budget.

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TC
Current stable:
- 2004 Mazda RALLYWANKEL
- 2007 Saturn sky redline
- 2004 Explorer...under surgery.

Past: 135i, GTI, 300E, 300SD, 300SD, Stealth