With that many miles I would be looking at the cam chain tensioner before trying to start it up. If the chain is worn enough the plunger can disassemble itself. If it has done that already that may be the grinding noise that was attributed to the starter.

Thumbs up. Ohiomoto.

That would take an enormous amount of energy and expense to complete.

If she wants the frame painted cause of some rust, what she say about the cases?  

Those 2 orange hoses with nails in them look to be the carb vents... take the nails out.

Key issue with a 87 with a grinding starter could be the starter gear is missing teeth.  pop the stator cover to see.  and I would consider upgrading with a torque limiter gear... see the tech section.

Thank y’all for the pointers!  I will check on the cam chain tensioner and the starter gear.  The bolts in the hoses are to protect them, and they were put in (not by me) to keep bugs out (spiders and dirt daubers in this area).  I will pull the inline filter as well.  As for the engine and covers, we planned to paint them from very beginning!  The plan is to black out the bike, with the exception of the tank and fenders, which will be blue.  The bike will have a matte clear coat on it.  I will put pinstripe tape on the engine fins, and remove it after the paint is applied for some contrast.  All engine bolts will be left silver colored.  I am researching how to remove chrome, as it is a real pain to get paint to stick to it.  At the moment I am leaning towards using an electrolysis and sulphuric acid process to remove it.

We knew that there would be expenses to fixing this bike when we bought it, and we did consider a newer one that was running, but I cannot afford the down payment that the bank wanted for the loan.  This bike only cost $200 and a Uhaul trailer rental!  Figured that I could have payments (after saving up for the down payment), or I could put the money from payments into the parts to repair it and have fun / learn as I work on it.  Besides, I found that I really enjoy working on motorcycles while I was fixing up my Fury!

Additionally... I am able to justify more tools when fixing up the bike for my fiancée!

You will need to disassemble everything, including the engine; especially the top to check cam & cam bearings,rockers, valves, piston/cylinder, and possible the bottom end as well.  You need to be sure all primary components are good and usable as is.
You do have a lot of work in in just cleanup and redoing the damaged wiring.  Consider getting a new wiring harness.  One of the same vintage is likely too aged.
If the engine is ok inside it is rebuildable for a reasonable cost with lots of sweat equity.  
If you do need to part it out and start with another bike I will buy your old usable camshaft, if there is no damage to the cam bearing surfaces.

If you are determined to work with that bike, you might want to look at the marketplace section, SoC has a lot of parts that he is getting rid of. Including a lower mileage engine.

I'm sorry, but that bike is not a good candidate for rehabilitation. The known issues (starter, clutch, fork seals, cam-chain tensioner, wiring, exhaust, tires) will cost you $1,000 to repair/replace/rework. It's the unknown things that are going to eat your lunch. I would say budget another $1,000 for those. And then there are the cosmetic issues - which are many. You mentioned that the frame needs to be painted because of rust...but what's under the rust. Once chromoly tubing begins to go, it usually goes deep and far. Finally, you will spend hundreds of hours bringing the surfaces back. For example, in order to get the corrosion off the hubs you are going to have to de-spoke the wheels. You will spend many hours getting them polished. Once polished they will have to be sprayed with clear and baked, otherwise you'll never be done polishing that bike. The spokes appear to have corrosion and if they are compromised are a safety hazzard and shouldn't be re-used. Getting the engine cases painted will be a nightmare and a disappointment. Plan on 20-50 hours of work to get them prepped for paint, and then expect the paint to begin to fail shortly after riding. The cases should be powdercoated. Of course the engine will have to be disassembled to get ALL of the cases coated. If if you can paint and powdercoat by yourself, it's another $500.

This bike is a money pit. My gut tells me even if you are happy with a half-assed job you'll be in for $2,000-$2,500. If you are hoping to have a nice bike (all surface corrosion removed meaning new bars, mirrors, t-clamps...fresh paint and powdercoating), $3,500-$5,000. Oh, you'll be lucky to have it ready by August. Are you ready to dump a few grand (or more) into the bike in the next 90-days?

But for $1,000 you can find a good runner, that's ready to ride NOW.

Cut your losses before you go in too deep. This is coming for someone that builds bikes from unloved bikes. I wouldn't touch this project if you GAVE me the bike.