thats a pretty reasonable budget to play with, as i see it with the EFI option you have two paths:
first is to keep the current motor in the car and put a vk efi head on it then fit the EFI.
second option is to fit the complete VK EFI motor and then EFI.
if the car has the 186 on the rego papers then i'd stick with that and just fit the VK EFI head, get it modified to run unleaded and while your at it get a light porting job to get it flowing a bit better.
personally i'd go for a full engine reco either option you choose, along with a bit of head work and a cam upgrade you should be laughing and will have a spankers motor ....
the EFI side of things isn't TOO hard .... the first VK EFI conversion i did was in an EK Wagon .... you will need to move the battery to the boot to clear the EFI manifold .... you also need to bash the firewall back just above the starter motor to allow the efi manifold to fit.
you need to fit a fitting in the fuel tank for the return fuel line, but this can be easily done with a high powered soldering iron, flux, centre punch and a brass hose fitting ....
the wiring is reasonably straight forward and is pretty much a stand alone loom that just needs some input from the ignition and a few wires on the coil etc ....
you'll need to get some custom made extractors or modify a set of aftermarket ones ....
if your seriously keen about the VK EFI option have a read through
http://www.oldholdens.com/tech/eficonversion/index.php which i've written from my experience with various conversions, it will tell you everything you need for the conversion and a very in depth step by step of how i did it .... if you want to go through with it i'd be happy to help you via email etc or if your local to newcastle i would be happy to lend a hand.
as far as bang for your buck i reckon its unbeatable .... sure its not the best option these days but its cheap and very well worth it.
this is my EK before the EFI
and after
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