I just went through this. Lost 2nd gear last year. Put a 13K mile motor in from Craigslist for $650+.......so far so good......cheapest/easiest way I knew of....
I did the same thing, for the same price but it was sourced from ebay. It ran well until I took it to the dyno, most of you are probably familiar w/that story if you read my posts.
http://www.vmaxforum.net/showthread.php?t=21873&highlight=dyno+dilemma
That was after about a dozen tanks of gas. Then I bit the bullet & spent the $$ for it done right w/an undercut transmission. I took my bad engine, stripped the (good) tranny, had it undercut, installed it in the good crank/original engine, had a valve job & clean-up cut on the cyl heads, re-installed it, & found my clutch slipping. PCW extra-disc & OEM friction discs, PCW heavy-duty spring, new gaskets & back-together. Build by Under Pressure, Dania Beach FL. I removed & installed the engine. And, I added COP's, Dyna 3000 box, UFO 4/1, a spare set of fully-kitted DJ Stage 7 carbs I got, I already had switched over to radials this past year.
Ready to go to Daytona Beach Bike Week! This year...
Then the #4 intake cam snapped in-two! Not immediately after the engine work, but after a few tanks. Snapped clean, like a knife, at the edge of the camshaft cap closest to the engine midline. Spare parts from my junk engine got me to Daytona (camshaft & tower cap) & the bike ran great, idled in stop & go traffic & no one from the Saturday Boxenstopp run to Deland Airport would ride next to me, "that UFO!"
But the bike ran great.
Came home, the bike began quitting on me shortly after startup, was a bad pick-up on the crank/stator/rotor system. Another dive into my spare parts, another fix, back on the road & running fine.
Cost? The undercut trannny was $400. I got new shift forks, and a shift drum. The disassembly/reassembly & head work, parts & labor, to get it ready to reinstall in my frame (by me, the back-in-the-frame peon) was another $1300 w/tax. PCW clutch kit w/H-D spring, $165. Dyna 3000 used, ~$200. COPS, ~$160, UFO 4/1, ~$525 shipped, used. DJ Stage 7 carb set, stock carbs off, drop these on, spare stockers on the shelf, $400. You add it up, I'm afraid...
If you are wanting to get anything for it, you might try and find someone near you who can help you do it, and then sell it, or, sell it cheap, the way it is, and keep your $. You should be able to tear it down & get it back together for $700 in parts & some meals/beverages, if you locate a 'kind soul.' It sounds like a bent shift fork/worn drum, or rounded dogs. A used engine is a 'pig in a poke.'