I don't have rental property, but I hear that you can avoid capital gains taxes on a sale if you put the funds right into another rental property. Is that correct? Is that something you want to do here?
As far as the market valuation goes, I would just invest it in line with my asset allocation. If you don't have one, you should decide what that looks like for you. If you don't need the money to live on in the next, say, 10 years then it probably doesn't matter whether the market is slightly overvalued or not. You'll collect dividends in the meantime, and the market will probably go up in the next 10 years, even if it takes a dive or two in the meantime.