After purchase I noticed it had a leak in the engine compartment. Not fast, but enough to bug me, and honestly I wasn't terribly concerned as old I/O boats are notorious for leaking (I've since learned that they should never leak. If they do, something is wrong, and your boat is sinking). I brought it in and had the typical bellows replacement work done and had the gimble bearing and u-joints replaced at the same time; that's just good maintenance, anyway. I put it back in the water, and nothing had changed - still leaked water into the bilge, and the more I used the boat, the worse the leak got. I knew the engine had to come out for further inspection.
I pulled the motor using a friend's A-frame hoist and left the drive on and headed to the water again. I hoisted the drive into the "up" position with ropes to keep it from dragging on the ground. I left the boat tied to the trailer and backed it into the water until the entire outside drive was covered in water, then climbed into the boat to find the leak. Lo and behold, I watched as water started to seep in around the lower section of the drive hole. I stuck my finger down into the wood and....found mush.
I went home with the boat and started digging in the wet area with a screwdriver and the wood came out in bits. Bad sign. Interestingly enough, I couldn't "hear" this rot from the outside like most people suggest (knock on the transom and listen for different sound in specific areas). Either way, I now knew the transom had to come out.
Granted, there are more ways to identify a rotten transom. Drill a small hole in a suspect area and see if the wood comes out dry and wood-colored, wet, or like sawdust. If it's the latter two, you have rot. Knock on the transom, sometimes this works to identify "hollow" sounding areas, indicating that it may be rotten in that area. I'm not covering all the methods of detection, just what I did.
Let's talk for a second about mounting things to the transom. This picture shows the holes from the pitot tube mount. Note the lack of silicon or additional sealant around the holes. This is manufacturer installed, and I have no doubt this contributed to my rot. If you just bought a boat, remove all the stuff on the transom and seal it with marine silicon. When I removed the mount, water ran out of the holes. Not a good sign!
On to the next step: Removing the Transom
This is what happens when you take a drill bit to fiberglass and you don't grind the gelcoat away first. That line is a crack in the gelcoat that I'm guessing happened the second the drillbit began turning on the gelcoat. ALWAYS grind the gelcoat away before drilling.
If you're shopping for a used boat and find ants in it, be wary. Ants like rotten wood. Mine was full of them when I got it, and I had one heck of a time getting them out.
One last thought - it's easy to get involved in trying to figure out what's rotten instead of just getting to work. If you find rot in the transom, take the whole thing out. If you find a rotten battery tray, remove the whole thing. Rotten floor - remove the whole thing. Rot is a fungus and exists in areas that look completely solid. If you fix the boat here and there, you might be facing rot again in no time. Save yourself the time on investigation, get over the "OH NO!" part of finding rot, and remove all the wood. You'll thank yourself in 5 years when things are still as solid as the day you finished!