Thanks. Informative too. (archive)

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The M3 Euro engine or even the US spec engine is often istalled into E36 and even E30 318i... This is often done.
And the total cost is still less than an M3.
Only drawback as you said is that the car loses its value or can be sold to few selected people.

But getting a 525i cylinder head and working on it: polishing - porting isn't costy at all.

I would imagine the daring project is doable, but one thing to think about is whether you would want to live through the process and be willing to accept the consequences, as somethings may not always work out or be adjusted right. Yet again, some might even enjoy it. From an economic point of view and if you are result-oriented, selling the 525 and buying a pre-owned stock 535 or 540 would seem to make more sense. I have seen trained BMW mechanics turned a 318 into an M3 as a hobby with more horsepower than the stock M3, but it had cost him more than buying the stock M3 then upgrade it, plus the finished project had irratic idling and other problems. I have also seen him replaced the 3.5L M5 with the later model 3.7L (or 3.8L?) engines but in that case the E34 M5 engine compartment, body and chassis layout are "substantially" the same. I was told that the M5 cannot be retrofitted into the body of the same E34 525, as there would be no space for the M5 exhaust. Don't know whether 535 and 525 have shared tranny or chassis layout.

You must be commended for the ambition of your project. Also experience with BMW engines is a skill that will led to a well-paying job. These engines are technically advanced.

I think the proposed projects may need re-evalutation. I don't know the length of your class or your budget. You'll want to consider the following:

BMW PARTS EXPENSIVE
Engine parts(as are other parts)on BMWs are expensive and I don't know if your budget has taken this into account. You can probably scrounge up used/free parts but this takes a lot of time. Don't know if there's a time constraint in your class.

ENGINE SWAPS DIFFICULT
Engine swaps on modern BMWs are very time intensive and lots need to be worked out. I'm fairly certain the engine and transmission programming are integrated so it's not going to be plug and play with engine/tranny swaps. Then there are possible compatibility issues between for the on board computer, instruments, cruise control, etc. Also the suspension and other components are often a little different depending on the engine/transmission combination. Judging from some of the engine swap articles it seems that it may take a year or more of part time work to sort these things out... and you end up with a car worth less on the market than a stock one.

M50 WELL-DEVELOPED
The M50 is already a very well developed engine and I don't think more power can be obtained without sacrifice in reliability, etc. Look at the hp developed per cubic inch or liter and compare that with other high performance or sports cars. You have to remember this is a 3,500 lb car with a relatively small displacement engine. The 525i with the M50 engine was meant for economical operation. For performance the offerings were the 535i and 540i. You'll notice that BMW used plastic intake runners on the M50 - the inside of the runners are smooth (no polishing needed)and it's lighter in weight. The 3.5 liter engine would be a great engine work on to develop more power. It's robust and can be highly developed. Although I really don't think it needs more power after I drove a previous generation 535i with stick as a loaner car. It was really hard to keep it throttled back on a city street with a 35 mph speed limit - the car just wants to go! Like a thoroughbred horse. Would be a bit much everyday. You need to remember that BMW believes in balanced performance with a chassis faster than the engine. This I agree with ... and yet I would love to have another 10-15 hp or a bit more torque on the low-end on my 525iA!

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