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The tires are the most important upgrade. I have the KOs, and I'd really recommend them - it performs better than any other AT tire offroad. The weak link on an Xterra is the steering system. If you lift, you will need to upgrade it - Calmini makes a great system, from what I understand. If you stay at stock height they steering will probably be fine. By the way, you won't need to lift to fit the 32s, they fit fine on a stock X. You should do the tires first, then take it offroad. With just a tire upgrade the X is really good offroad, you may even decide you don't need the full 3" lift. You should also upgrade your shocks fairly early on, I'm planning on getting Bilstiens.
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