Removing retaining wall
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I would not remove it unless you are up for replacing it. The easiest thing would be to clean well with tsp or power washer. Then paint. Last year we used hammered copper finish paint in a can by rustoleum. It hid a multitude of sins and went on with inexpensive brushes.
I wouldn't remove it either. It's there for a reason. You'll have a big mess with water and mud. You would have to regrade the whole yard to compensate for the slope. And you'd probably still have a water problem that could run towards your home. Use it as a focal point and decorate it. Or plant shrubs in front of it and use it as a way to separate the yard into a play area for children and adults. I would put a swing set and other kids things on the top part and a nice fire pit and seating area with maybe a water feature on the lower part. Set up a cornhole game or horseshoes. There are so many options. Just embrace the wall and you'll have plenty of ideas.
the retaining wall is there for a reason - keeps back the dirt or yard from shifting downward. Replace the wood with stone or landscapers blocks
We have had a sloping yard and now a retaining wall. Would never take the retaining wall out. Not only does it provide more level land but it gives protection against sliding and mud. Just replace it in the summer time but don't take it out unless you have someone who knows what they are doing look at first. Please let a professional look at this first.
You will need a wall of some kind due to the elevation between the two sections. Decide on what you want to do before pulling down the wall. Brick or stone can be expensive but would be more permanent.
That sounds like a good idea!