I wouldn't have thought £3.5k, when you consider the time and effort it is going to take to put right. As Operationalfa says they are starting to go for around £7k for one that you can drive away. So if you work out that an engine is around £4k fully fitted with the associated buggeration, I would say absolutely no more than about £2.9k and that was if you are the type of person to follow a project through.
It would seem that there is great potential to start and slowly stall unless you have great energy and access to a decent garage etc. I bet that somehow it will cost you as much as a running one eventually somehow, with nothing (discount) to pay for all your effort.
Call me cynical or negative, but unless you have unswerving perseverance, patience and deep pockets I would drive a hard bargain.
I would say the one that the chap who bought the one off ebay recently for £4k that had been repaired but needed finishing probably got a very good deal. One with no service history and a knackered or no engine is a money pit.
However, you pays yor money and yus take your choice.....
E.