Scooby-Doo where are you?

I am picking up a 2004 Subaru Forester with a bad (surprise) engine for $200. 

I am considering a two pronged attack as this car will be used by the newest driver in the house. 

1: pick up one of the $800 JDM 2.5s and installing it then take the summer prepping it for teenager duty. 

2: rebuild the current engine and shelving it for the inevitable. 

As a Subanewbie what should I look for, update, backdate, improve, modify or avoid?

Not much to add other than a friend is in the middle of a similar project. 

The JDM engines are 2.0s, not 2.5s.  Not sure the 2.5 was even sold in the home market.

I would replace.  Depending on the failure there may be No User Serviceable Parts Inside.  If it had perpetually low oil pressure it could be because the main saddles are hammered out.

OTOH I have never heard of a catastrophic failure in a nonturbo EJ so I am curious what is "bad".

I have a similar conundrum. My sister's same era forester was way low on oil and is now knocking. Replacements of USDM engines are expensive. 2.0 turbo JDM engines are dirt cheap by comparison, but I don't want to do the work to turbo swap an OBD2 car that needs to pass emissions. Kinda hoping I can figure out a similar thing to when I had the 2011 and used the $400 2014 engine in it vs the $3200 everyone wanted for a 2011 specific engine with 100K+ miles.

The JDM engines I was talking about were SOHC non turbo 2 liters.

I used to compete with a couple guys who swapped one into their 2.5RS rally car, because they were dirt cheap.  Stock 2.5 electronics.  It worked well enough.

I would want to make sure the replacement engine is EGR capable, I think Foresters had EGR that late in the run.

Still curious what makes the engine "bad"...

Found out, by looking at the title upon pick up, that Forester Gump is actually a  2007. Hurray for 10:1 compression ratio! Boo for PZEV ALHV frickery and failures.

I've found a few Michigan Subadudes (I think that's what you call them) that have 2006 to 2010 engines between $1200 and $2000 with new MLS gaskets, bolts, belts and pumps. 

I am unsure of how good what is left in the car.

This is how it was found:

What the heck were they doing taking it apart that far in-chassis?

Step 1 is start draining fluids and evac the A/C system.  By the time the machine is done evacuating, you could have the starter off and all of the wiring disconnected and probably all of the bellhousing bolts.  Then you disconnect the A/C lines, unbolt the exhaust manifold and the motor mounts, and lift the whole bugger out as an assembly to be dealt with on the bench.

I used to do the thing where you unbolt the A/C compressor and flip it over to the battery tray, but this way is actually faster and won't kink an A/C line.  Removing the A/C compressor in chassis is a remarkable pain in the butt, and I have access to an A/C machine, so...

I AM curious about the core if you don't want to mess with it/they don't want a core back.  A 2.5 is in "Colin"'s eventual future, and if one isn't fixated on getting an STI unit, a block is a block is a block.

That makes more sense that it is a later engine that let go, rod knock Rodney likes to visit these (that's how my 07 2.5i let go). The 04 and earlier cars don't tend to do this and there are a lot more rusted out shells with good motors sitting in junkyards to replace them. 06-09 EJ253 is what you are looking for if you go looking for a replacement.

Pete, the owner handed the included service manual (picture 1) to his 15 year old son with a new Craftsman tool box cube and said "Make it run and it's yours." This was day 1 and 2, it sat for a year since.

Probably broke a belt. I'd pull the engine out and remove the heads. It might be as simple as replacing a few valves, maybe some reman heads. 

Belt is complete and solid in the hatch.

I think I will pull it out, disassemble the heads clean and prep the short block, have the heads gone through, add MLS turbo head gaskets, and reassemble with a high quality timing set and let it eat a bit. Snow season is nearly done, I can reset the garage to hold this nightmare 

QuasiMofo (John Brown) said:

Belt is complete and solid in the hatch.

I think I will pull it out, disassemble the heads clean and prep the short block, have the heads gone through, add MLS turbo head gaskets, and reassemble with a high quality timing set and let it eat a bit. Snow season is nearly done, I can reset the garage to hold this nightmare 

I would pull the oil pan before bothering with the heads and see if any of the rods have any bad play on the crank.