Hold or sell rental 1 in this situation?

[Ryan Duphorn]

I'm 25 yrs old with 2 rental properties, one of them I currently live / house hack in. My debate is whether to hold or sell rental 1.

Rental 1: Bought in 2021 at 3.25% interest for way below market value at $165k. 4 bed 2 bath 1900 sqft. It currently rents for $1800 / mo & tenants pay utilities. My monthly payment is $980. Cheap taxes for the area. Insurance is $970 / year. I could sell for $290-300k (per COMPS & multiple realtor friends who have visited the house). C+ neighborhood.

***I have lived in rental 1 for (2 out of past 5) years so no capital gains taxes right?

Rental 2: I currently house hack this and my tenant pays me $750 / mo split utilities. Great appreciating neighborhood in best part of the greater city. Huge detached garage that supports my side business (woodworking & carpentry). I use it as a workshop. Bought in 2023 at 7% interest at $280k. Worth about $350k as it stands but after continual upgrades COMPS are at $370-380k (after 2-5 years $400k from appreciation). 4 bed 2 bath so I have space to add another tenant but don't want to cram it. I'm not worried about living for free here as the appreciation alone for this neighborhood will turn me a profit down the road.

The large cash flow from rental 1 also supports me living cheaply in rental 2. However, If I sell rental 1, I'm walking away with roughly $70k (300k - 20k *realtor fee* - 9k *closing costs* - 154k *loan balance* - 45k *reno costs* = $70k). Being only 25 yrs old with a slightly above average salary, I don't have more than $30k liquid cash so I would be more than doubling my current liquid bank holdings.

I know the answer to these type of questions is situation/goal based but i tried to lay out my situation as best as possible. My goal is to leave my 9-5 within next 5-10 years and be able to live off my real estate acquisitions.