If you go to take a test drive, insist that the engine be cold. See if it smokes any on startup and test drive. Blowby test, as suggested, is a good indicator. Does trans shift smoothly? Do check for rust as suggested.

Price is about right for a decent car with minimal problems.

Check for common signs of lack of maintenance. Excessively worn rotors, rubber on front end, motor and other mounts, does it drive strait and continue to drive strait when you hit brakes while letting go of steering wheel? (don't be going too fast)

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Codifex
1981 240D ChinaBlue (Got her running with a donor engine.)
1983 300DTurbo w/sunroof.
1984 300TD manual sunroof. (Electrical Gremlins)