One rental in, what to do for the next?

[Filly Afenegus]

Hello! My wife and I own and self-manage one rental property (first home lived in, then turned rental - and this has become our strategy....buy-live-rent out). We currently own our second home but we are growing out of it fast with our 3 kids. We live in a high market area and are trying to figure out if selling our home for $150k+ equity to purchase a more bigger, expensive home or do we rent out this home (cash flowing $500 more than our mortgage payment) and move sideways and purchase a similar size, less expensive home (but having 2 rentals instead of 1). Is buying a larger home for our family to live in on more land a bad investment if it is appreciating at a rate of 5-9%? How do I factor capital gains tax into the equation of whether or not its worth it to rent it out? Thanks for your help!!