The only way to eliminate rust is to cut it out and weld in new metal. You must do this for anything structural. I stripped my 2002 body with a combination of an orbital DA sander, sand-blasting (playground sand--I was cheap), wire wheels and heat gun and managed to do it without warping any panels. I did it in my tiny one-car garage and years later I still find remnants of the sand. I should have just had it dipped. Since you have space outside building a tent is the way to go.
Also realize that while abrasion (sand, wire wheel, grinder) removes the appearance of rust, it is still down there inside the metal. It needs to be neutralized with phosphoric acid or similar, then encapsulated.
To do body and paint work you need a good compressor for the high-flow tools such as the DA sander. I bought a single-stage 80-gallon Ingersol Rand (a bit over $500 delivered), but everyone who knows recommends a dual-stage compressor, at around $1200. In hindsight would have been good, but was not in my budget at a time. As a result I had to pause often when using the DA.
As far as neutralizing and encapsulating any rusted areas you have sandblasted/wire wheeled, POR-15 metal cleaner, metal prep and paint is one of the systems of choice. I did the whole car (including underbody) in POR-15. Then I primed the visible surfaces with POR-15 primer (it was blue) and had a body shop shoot the car in Colorado Orange (see my avatar). It came out well, and no rust has come back.
Make no mistake--this is a huge project and will take you several times longer than expected. But if you love the car, and do most of the work yourself, you will find it very rewarding.
Here's some recent posts to get you started:
Where To Start On Restoration? http://www.bmw2002faq.com/topic/148146-where-to-start-on-restoration/
Por 15 Rust Prevention - Thoughts? http://www.bmw2002faq.com/topic/145877-por-15-rust-prevention-thoughts/
Do post a few pics so we can see what you have to work with. --Fred