Help buying an E34 525i 24 Valve

Hi there,
[UK posting - quid = pounds]
Noticed an e34 525i se, 24 valve on a J plate at a local garage (which specialises in 4WD tonka toys) a couple of weeks ago - it had a flat
near side rear tyre but apart from that looked in pretty good nick. When I passed the garage again yesterday I decided to take a closer look. The tyre was still flat and the battery was dead, but a mechanic put air in all the tyres and started the car with a charger (apparently the car hadn't moved for 3 weeks).
I got my friend to blip the accelerator as I watched the exhaust. On each blip the exhaust gases were initially clear then much darker then white then clear again.
Then took the car for a run - absolutely fabulous, felt like a new car, quiet, taut and responsive. After about 5 miles I pulled into a car park to test all the electric gizmos, leaving the car ticking over.
I then took the oil filler cap off and noticed a slight whiteness on the filler cap, a bit like cafe latte, but not very thick (prior to the test drive I had checked the filler cap and it was completely black). I checked the temp gauge and it was sitting about one or two millimetres to the right of the middle position. Got my friend to blip the accelerator again, and again on each blip the exhaust gases were clear, then darker, then white, then clear. I wiped the cap clean and drove another two miles back to the garage where I took the cap off again - this time no whiteness and the temp gauge had returned to the middle position.
So a few questions:
Could the whiteness have been due to condensation after standing for 3 weeks?
Did the temp gauge go too high? My e30 320i stays well away from the middle position.
Do the exhaust gases seem OK?
Or does all of the above indicate a head job?
The car has done 133K, has a pretty good service history, lots of bills, 3 previous owners, immaculate interior (not leather), and the head gasket and water pump were replaced by BMW in 2002.
Bodywork is good but not immaculate - stone chips on lip of bonnet (touched up), bit of rust just showing thru the underseal on the edge of the sill next to the offside rear wheel arch, two bits of bubbling (20p size) on the edge of both near side doors. Not bad for a 13 year old car.
I can get the car for 1100 quid (sticker price 1295) with a new MOT and a month's warranty on engine and gearbox.
What do you think? Any advise greatly appreciated.
Rob
PS - if anyone is kind enough to respond could they email me at snipped-for-privacy@open.ac.uk *remove the ZAP*
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Yes. Especially if the car was only used for short journeys before that. Is the coolant clean?

Could be a failing viscous fan coupling, stuck thermostat of glogged radiator. But E34s also suffer from dodgy water pumps, a new one is about 25 quid.

Possibly.
A compression check would be nice to have.

Pump should be fine then.

There are lots of cheap E34s around so don't be hasty. But that sounds a decent price and if it passes an MoT it's bonus. E34 parts are pretty cheap and they're well made.
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Email: snipped-for-privacy@unixnerd.demon.co.uk, John G.Burns B.Eng, Bonny Scotland
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My initial feeling is that this car has water (coolant) in the oil, which signifies a problem with the head gasket, OR a cracked head.

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Too expensive IMO for a car with potential problems. Despite the warranty. '94-'96 E34 525's in a similar condition, without possible engine faults, and with air con can be baught for under 1500. With similar mileage though. 525's, late '93 onwards should also have the M50TU VANOS engine, which gives more torque at lower revs than the earlier M50 non VANOS lump. Also if it has a/c, later cars will probably have an R134a system, rather than the obsolete R12 system. Two good reasons IMO for buying a later car. Mike.
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just a comment on the temperature needle.
my e30 320i - no matter how i drive it - slow or smash the pedal, chasing thru city - it always stays in the 100% middle position. and I heard only that should be considered - fine/working properly.
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