Captial Gains - Primary residence/rental property - Sell or Refi?

[Kallie Cornett]

BP Nation - As a rookie real estate investor, I'm seeking advice on our first investment property in the Nashville area that my wife and I previously called our primary residence (2017-Jan 2021), and began renting it at the start of 2021. We have up until end of 2023 where we could sell the home and not pay capital gains (we meet the IRS' ownership and use test having it been our main home at least two of the past five years). This house has given us great momentum that we want to keep going and some emotional attachment - so we're uncertain on the best approach with this property that is currently making 9% C/C and has continued to appreciate. SEE DETAILS BELOW. Bottom line -- torn on whether to sell the home to avoid capital gains costs, or keep it for a longer haul in a hot market and do some type of Refi to take cash out and put towards an additional property.
Deal Deep Dive >>
Purchased Home Price: $420K
Remaining Mortgage: $300K (3.85% APR)
Home Value today: $700K
Mortgage Payment (includes taxes + insurance): $2,200
Rental Income: $3,350

Scenario 1: Sell the home in the next 1-2 years to be able to exclude the capital gains from our income, and find another property to purchase with the proceeds
Scenario 2: Keep the home and Refi. What would this process look like? Would you recommend a Heloc or Cash out Refi?

Any help or thoughts are welcomed and appreciated.

Thank you in advance!