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Bit late, but I picked up a '99 V70 for a smidge over £1k, 3 years ago.
The only thing it's needed in that time (other than routine service stuff) is £140 on some suspensiony bits for the last MOT. It returns 33-34mpg for me. I don't care when someone 'parks' into it.
Had 5 bikes and 3 people in it once, eventually.
Love it.
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Sick! Where'd you find it? Really looking forward to seeing the build.
I actually have a new, unused set of purple GKs here that I bought for the same reason, if you wanted them...
Slick 38s are fine. There's probs clearance for 40-42mm at the fork to be honest, but the chainstays are pretty tight. I had some 35mm GravelKing SKs (the knobbly ones) on there for a while and, clearance at the chainstays was pretty minimal to be honest.
There's someone on instagram who claims to have got 42mm tyres in, but he's lying / has narrow rims / hasn't measured actual inflated width.