I'd think it's fair to say, that if you could sell it and get your money back, there is no debate as to what to do there, but in the current condition that may be difficult to sell and break even. Like I had mentioned before, I've strung along this old 850 to keep the fields cut and other things I needed to do until it was a convenient time for repairs, only advantage is the motor does run well, but the other work it needs will probably cost a few bucks and will require some time to do. I take as best care of it and use precaution to try to make it along, knowing I may have a problem in the middle of doing some work, so far so good, these tractors seem to tolerate a lot, also might be what the previous owner of yours did for too long, hard to say. I'd try to string it along and get the priority work done, that is if it's in no danger of anything catastrophic happening, like tossing a rod etc., then start with the motor rebuild and or anything needing to be done or checked if it's split. You could make a list of repairs and see what you may be able to do yourself or have to send out, itemize the costs and see where you are at and what it will take to get things done before doing anything. You then can compare to selling vs rebuild, knowing the facts for both.
In my ridiculous opinion, the purchase price of that tractor could have been negotiated lower, had the real condition been known at the time of sale, (but even then, it does not appear that what you paid was heavily excessive) leaving some $$ for re-build and restoration, which can be favorable to do for a specific model desired, and if no luck was had finding that specific model in field ready condition. That is a good model tractor and once repaired correctly, should perform well if properly maintained. I'd not hesitate to rebuild any desired model, like a 3400, if I could buy it right, because I know when I'm done, what I'll have, and it's not to say there won't be any snags in the process of rebuilding, just have to get through them. Get the correct Parts Catalog, Shop Manual, any pertinent bulletins, take a look and see what you may be comfortable doing yourself. I was never that able to do all the work required to do actual engine rebuilding, so I always used a machine shop, but I never had any trouble taking them out and or reinstalling them, depends on what you are comfortable doing to save some $$ vs. sending it out.
Ideally it is usually better to spend a little more up front for one in better condition, one that can be assessed to be in field ready condition with only minor repairs needed, not always possible due to budget constraints, so you do the best you can, I spent similar money on one that needed lots of work, yet I've still made good use of it and it owes me nothing after 5 years, it's made me money actually.
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