Making power out of the 318
Go ahead and get the 5.9 if you must, but I think as your first project it's a mistake especially since you already HAVE a 318. You're money ahead of the game RIGHT THERE. What will happen is, you will spend "whatever" part of your 3K budget on a whole nuther motor. Even the Magnum engines are getting old now and chances are slim you'll get one with low enough mileage that it won't take probably HALF your budget.
Then, even to reach 400HP with a magnum, you going to have to have "some kind" of cylinder head porting. You've already said your knowledge is limited, so that will cost another chunk of your 3K. 400HP will likely need 2.02 and 1.60 valves. Valves is another chunk. Gone. Valve guides sloppy? There's some gone. Heads will likely need milling to get them flat again. There's some gone. There's your budget pretty m uch down the toilet and we've not even gotten to intake, carburetor, ignition system, headers and on and on.
If you would just listen to common sense and experience, you'd get something running pretty quickly that would be respectable and keep your fire lit to collect parts as you go for build #2. As it is now, you're going to run out of budget. The project will stall and you'll lose interest and there it will sit. All these guys on here are spending money that isn't theirs with their recommendations. You need to think about that.
i'll play devil's advocate to this in the line of thinking of: how bad is the 318 he's starting with? i mean, just because he's got it doesn't mean that it's not rife with problems or needing machine work in much the same way a magnum would.
he's already established that there's a piston missing or messed up. so we know how far apart it is, so what else is missing and messed up? if the thing is gonna be worth a darn, hes gotta do pistons to bring up the compression ratio. so he's doing a bottom end. let's say he gets away easy from the machinist and all he needs is a next over, a clean up on the faces and for them to knock the cam bearings in and press fit the pistons.
he's mentioned that the heads he has basically need a full run thru, with parts likely, so there's another run thru the machinist's wringer. same as the magnum. or laying out cash for some useable heads... which is kind of a gamble, but not wild.
i guess what i'm saying is that there could be a lot of similarities betwixt the 318 and magnum in regards to machine work, which is something he can't do himself and a cost burden.
the benefit to the magnum, is that evidence has shown motors with reasonable mileage on them tend to fare better and can at times get away with just doing the bare minimum: rings, bearings, a dingle ball hone, and ship it.
it all hinges on the condition of the 318. if the bones is good, i'd go that route. cheap, easy, lots of parts, would come together quick without any additional supporting hardware. but if it's a tangled mess, the pendulum quickly swings back magnum.
but your point is well made. get it on the road as quickly and as cheaply as possible; then build a better motor on the slow boat. a fire kept stoked burns the hottest!