I agree with Cbisson. From my vantage point it appears to be shaping up to be an "odd deal" that could go South on you no matter how nice the guy seems.
If it were me... I would inform him there really are only 2 options:
Option 1: I will pay $XXX dollars after its running and it has been properly serviced and load tested to verify it can sustain 5kw power @ 120/240 60 Hz. The responsibility to get it to that state is on him, not you.
Option 2: Here is my "as is" offer for $XX with your understanding that this genset may never run properly or produce AC output & end up having to be sold off for parts only to recover your investment...hopefully.
Sometimes it can take a lot of $, time & effort to bring a neglected machine back to life. There could even be parts that are needed that cannot be easily sourced, or end up co$ting an arm & a leg.
If you haven't already done so...go on eBay & search on "MEP-002a" and look at the cost of parts that are available. Some examples simple items: Glow plugs ~ $100 ea x2, Oil pressure switch ~$70, Temp Switch ~$73, Facet fuel pump ~$270 ea x3, OEM CH6 PL oil filter ~$32...the list goes on.