If your existing transmission can handle the power, I suggest that you swap in either an m3 engine, or a 328i engine. You already know your car well, and buying another used vehicle involves -- again -- having to diligently look for anything that needs fixing, aside from the upgrades you want to do.
My vote goes to m3 engine swap + putting money into upgrading brakes, suspension, etc., in orer to handle the power.
The transmission is going to have problems handling a m3 engine.
Well the clutch for sure, but i planned to put the 6 sp, with 3.2 litre under the bonnet.
And DRZ i like your idea, going to call a few companies to get quotes now
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