water outlet problem on my '67 evinrude 18hp

i just got a 1967 evinrude 18hp give to me and after getting it home the motor was no good so i found a good used powerhead off ebay for $100 and now it runs like a champ. the problem i have is with the water outlet. in the mid section when u look inside there is a hole at the bottom of the area where the water outlet and exhast are seperated and i think the water is going out with the exhast. is this a problem? i have took the water pump apart and everything looks good. it was pumping water out good when i was working on it then it back fired and water stopped coming out that is when i took the lower unit off and seen the hole. any help would be great.

I had a similar issue. Problem was the water level wasn't high enough in the tank. The pump wasn't strong enough to start suction. At least a couple inches above where the foot bolts to the mid section, or above the top of the water pump.

well there is a hole in wateroutlet tube that allows the water to go out the exhaust hole is that good or bad

You should have water mixed with the exhaust on that engine. As has been mentioned put the engine deeper into the water while running it. Water lever should at least be above the lower mount clamshells.

Ok thanks that was what I needed to kno I will put it lower in the water and see how that goes