What should I buy????

Hey Oldrider, don't know if you've found anything yet, but you might think about a GS500. Great for a short inseam like yours, as close to free as you can get for insurance (I pay $600 / year as a new rider with no training course), reliable, great on gas, and comes in either a version with fairings or naked. This is not a shameless plug for the one I have for sale, as I'm asking more than $3000 for mine, but rather a plug for a really great bike. I know you can find a decent one for $3000 or less. If you can find one in decent shape for $2500, let your 16 year old learn how to ride safely on something with manageable power, and be able to beat it up a little without the guilt of scratching an expensive bike, you'll be able to get most of your money back if / when you want to move into something else. I love mine, but am only getting rid of it for something with more storage options.
 
I have a 30" inseam and have owned a KLR in the past and currently just bought one in Australia for my "second season" riding ;)

Lowering kits are easy and cheap but if you sat on a new one a used one will have a couple inches of sag.

The KLR650 was also my return to riding after a layoff - it can be owned with little reduction in value over time.
I bought mine for 4,000 - sold for $4200.

BTW I'm 64 and put 70,000 km on various bikes over the past 3 years - mainly the Burgman 650s which I adore but out of your price range.
 
I agree with everything posted so far.

Would also suggest a Yamaha FZ6.

Personally, I ride a Suzuki Bandit 600 and it's decent and simple and comfty, but a bit heavy. It was reasonable used. It's my first bike.

When I get 'old' (30's coming up, with insurance discounts!) I'd really like a Yamaha FZ1, Suzuki Bandit 1200, or a VFR. Would also consider an F4i, a ZX-9 or a Fireblade - basically, a sportbike with better ergos and that's still tour-able.

I have tried the V-Strom 650 and it's great too - adequate power, lots of torque, fairly compact-feeling with a great riding position. A new model year is coming up for 2012, so you could probably find a 2011 unit on clearout for $7k new - call some Suzuki dealers.

My friend has a 2001 Triumph Sprint ST and enjoys it.
 
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