Both are very good cars. Compared to your M3, they will both feel a bit sluggish in the engine department, but they should feel similar, as there is only about 200lbs separating the two. Of course, the 3 is a bit smaller, which will translate into a more nimble feeling when driving it hard, but in my experiece, the 5 feels much more refined no matter what kind of driving you are doing. Now, for family duties, the 5 wins hands down. There is simply more room everywhere, from the front seat to the back seat to the trunk. Because of this, I would recommend the 5 over the 3, especially considering your intentions for it and the fact that you already have an M3 which is more suited for spirited driving. Honestly, coming from an M3, i would seriously consider a 540. You mentioned cost as a factor, but a used 540 that is perhaps 1-2 years, will be similar in price to the 528/328. I similar decision with more bias going towards a 5, but I did consider a 3 and I eventually decided on a '97 540/6. Since my purchase I have driven brand new 528s for a charity event and the newness still did not outweigh the increased driving pleasure of the 540 (flame suit on). Good luck and let us know how it turns out.
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