Do I sell in order to buy more??? Looking for advice...

[Andrew Hinkley]

Hi all...So here's my situation.  I currently own a home in Los Angeles CA (Highland Park 90042).  I have gained substantial equity in the house over the past 2 1/2 years since I purchased it.  I am going to be buying a home near by which was my Grandfather's which has been offered to me a bit below market value.  I will rent the house that I am currently in which will provide monthly cash flow.  My question is if I should sell my current house instead.  I believe that I will be able to pocket around $250K profit without being hit by capital gains taxes, as the law now allows up to $250K tax free with certain requirements which I qualify for.  If I were to sell, I would use that $250K for other rental property purchases in other regions of the country.  Any advice?  Many thanks in advance!  ~Andrew