I had to answer this with a long post since this seemed so similar to my situation. In 2020, bought a pair of 2004 225s in a similar condition, so I can tell you my experience. The short answer, it needs to be a good deal and you need to be relatively handy and prepared to do a lot of maintenance and minor repairs. The motor can be reliable, but likely will need attention. But this rebuild is not a selling point and in my view is reason to discount the purchase price.
But first, I would note that the seller is a bit sketchy. There are the inconsistent stories about what happened to the motor. The seller reported to you that corrosion caused the damage due to insufficient anode protection. But the invoice from the mechanic indicates that the water ingestion through the exhaust ports caused the damage. I would question the seller hard about what really happened.
However, if I were to guess, I would say that the real problem was corrosion due to disuse. I don't think the insufficient anode protection on this range of motors is as bad as it is sometimes made out to be. Yes, Honda eventually put more internal anodes in the motors. But given the number of these motors still running and the crazy amount of hours some people have on them without corrosion issues, I think disuse, like running the motor for a few hours then parking it without flushing it adequately and letting it sit for a month or so without use is the more serious problem. The motor you're looking at had less than 30 hours a year put on it, which means it did a lot of sitting and probably fits in this category. The water ingestion explanation was likely just a ploy to get the insurance company to pay for the repairs as damage resulting from "accidental exposure to a condition" or "damage resulting from an accidental event,"--i.e., a wave hitting the engine and sudden water ingestion--which are generally covered by insurance, versus corrosion over many years of disuse, the likely real cause, which is generally excluded. I suspect there was some, likely minor, water ingestion through the exhaust ports at some point due to the SB 56 issues. And I suspect this caused at least some surface rust on valves and perhaps the valve seats of the exhaust valves on a couple of cylinders and enough corrosion for the mechanic to make a plausible case for this as the cause of the damage to the insurance company and get it covered. This gets the mechanic guaranteed payment for a decent sized job and the owner free repairs, so good for everyone--except the insurance company.
Also, the seller's statement that "once they rebuilt the powerhead its actually closer to 250hp" is likely complete BS unless they put on new vtech heads from a 225 or 250 and they may even need a new ECU for that, and none of that is mentioned in the invoice. Some of the pros on here who know more about these engines may correct me, though.
Even with all this, I wouldn't walk away from the deal if I really liked the hull and the boat was a good deal.
Now, let me tell you the story of my motors. In 2020, I bought a boat with a pair of 2004 Honda 225s that had the heads replaced in 2019 and the blocks washed and treated due to corrosion from disuse. The motors had 50 hours on them when the heads were replaced and 70 hours total when I bought them in 2020. Yes, 70 hours over 16 years. The previous owner apparently used the boat a couple of times a year to go the sand bar and that was it. But I got a good deal on the boat, paying the seller basically what he spent to replace the heads on both motors and with the expectation that I would likely need to repower in a few years.
I have since put a little over 250 hours on them. I fish usually 40+ miles offshore, and the motors have never left me stranded or prevented me from fishing, but I have done all my own repairs and have been constantly doing maintenance and minor to moderate repairs.
As for cost, I just calculated it all out, and since I've owned the boat, a little over two years, I have spent around $4,000 just on parts, filters, fluids (motor oil, gear oil, trim fluid), etc. for maintenance and repairs. However, probably $3,000 of that is just on one of my motors, which is my problem motor. And most of this was frontloaded in the first year. So since you're only talking about one motor, I think you should assume you'll spend between $1,000-$2,000 a year for at least the first couple of years to do all the maintenance and repairs until you get the kinks worked out and all the minor repairs that were deferred by the previous owner for several years done. This will include doing all the 100, 200, and 400 hour maintenance items in the first year regardless of hours due to age and fact that many of these may have not been done by the previous owner (which is included in my cost estimate). And this is only if you do all the labor yourself. If you have to pay a shop, I bet you'll have to triple the cost to account for shop labor. You don't need to be a master marine mechanic to do all this. I have worked on automotive motors and small engines most of my life, but I had never owned or worked on outboards until I bought these so you really just need to be handy with a basic knowledge of engines. And this forum has been an invaluable resource.
