Chunga,
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Boat test articles
I just bought a 73 Tsunmai with a Ford 302 and mercruiser Tranny. Has a II TR or II TRS outdrive.
I'm just getting started, so I can't really help. I would look for rot on all the cored sections. look at the foredeck from below and along the gunnels from below. If you see black fiberglass, it's fungus in the balsa core. Most older boats are going to have some kind of problem with wet wood.
good luck.