7k is a great budget for a mk1, and the mods you want to achieve should be easily achievable for that money. The only difficult part will be the paint job, but you'll need to do it yourself to stay in budget. Most shops cost about 6k+ for a DOORS CLOSED respray.

Word of warning. Although prep and paint aren't all that difficult, you need some serious motion to complete a paint job. After 30 hours of sanding, it's pretty easy to just half ass the rest. Do it once and do it right.

Engine, brakes, interior are all fairly easy and cheap to get.

Although you'll never see the 7k again (resale will be about 4 - 5k), when do you ever make money on a car restoration? At least the depreciation on a mk1 will never equate the the money you'd lose buying a new car!