Have you driven the M3?
I think it's more fun than the 1er. However, when I bought my car, the extra $28k was unjustifiable to me. I don't ever lease, rent, or finance cars. I did ED, my nearly loaded 1er came out to $41k, whereas an M3 optioned as I'd like would have run me $69k. M3 is a blast to drive, but it is not $28k better than a 135i if you're paying cash, IMHO, especially given how inexpensive it is to modify a 135i to achieve equivalent performance in all regards. Apples to Oranges, I know, but I'm not saying a modded 135i is superior, only that the cost of modding it played into my choice.
If it were $54k vs $41k, I would have opted for the M3.
Drive it, and see how you feel about it. It doesn't feel quite as heavy and large as it is, though you can feel the extra heft compared to the 1er. It seems slightly more hesitant on rapid left/right transitions, though is generally equally sharp on the turn-in, with superior steering and chassis feel, with a good bit less body roll.
Realistically to get the 135i on par or superior to the M3 in terms of handling, you aren't talking about KWs. Probably a complete suspension setup from TC Kline or Vorshalg would be more along the lines of what you'd need, along with some bushing and control arm upgrades. Realistically, figure $5k with installation, alignment, and cornerweighting depending on how friendly you are with your shop. Straight line power is cheap. Catless DPs and an aggressive tune and you're talking about trap speeds in the low 1-teens, on par or a bit faster than an M3. Figure $2,500 there. Next you'll want an LSD, and that is another $4k.
Add it all up, and you're talking about over 10 grand, enough to justify the price different between that used M3 at $54,000 and the new 1er.
If your budget extends in the mid 50s, keep in mind you can get a lightly used 997, or a brand new Cayman S given the discounts going, and either of those cars are clearly superior to the M3.
'08 Black Saphire/Black Z4 M Coupe
RIP Gretta: Blue Water/Lemon 135i. Died to save me.