Other than the potential issue with a lack of local buyers, I think your second option is the way to go.
You won't get back the money you put into upgrades and repairs, even assuming you can make correct repairs. You might accidentally make some things worse doing repairs that you are not familiar with.
Ideally, you would have a buyer examine the game in person when they buy it.
Seems like you are intent on being open about the issues, and hopefully even a long distance buyer would understand that buying a game with issues is always a bit of a gamble.