Continue to rent or sell first rental?

[Aaron Ziegler]

Hello BP community,

My first rental is coming up on the 5-year rule which has me tempted to sell as I lived there for just over 2 years so I qualify to avoid capital gains tax up to $250,000 (which is right around the equity/profit if I sell). As tempting as this is, I can't help but notice the interest rates creeping up and I live in an area where sadly $250,000 would barely be enough to put down on another investment property as prices have skyrocketed especial over the past 18 months. I'm torn between selling and trying to reinvest or should I keep it and continue to rent it. It's a mid-70s starter home 4 bed 2 bath 1,500 sf ranch style home in a small town. 

Unfortunately, I'm surrounded on both sides by rather unsavory folks who like to party a lot and frequently let drifters/squatters/rehabbers etc. live at these properties. Sometimes it's a makeshift lodging made out of a backyard shed and sometimes it's a 5th wheel camper parked in their driveway. No shortage 90s rock, beer, smoke, harder stuff, and more F-bombs can be heard than all other words combined (by both the permanent occupants and their guests). This is a big push for me to get rid of this problem property as I cannot control these external factors. 

So, the question is, do I sell and take the money from the sale try to buy something else (although it's difficult rolling it into another rental as prices are high and now interest rates have jumped). Or do I hold this rental and roll with the constant issues maintaining course as a long-term rental? It is currently purchased under a 30-year fixed mortgage at a 3.125% interest rate and cash flows around $750 a month. 

Thanks in advance to responders.