The market with the higher rent appreciation will always eventually have the better cash flow (assuming no refinance and rent appreciation exceeds expense increase).  

That will pay for years and years and years of increased property taxes.

The argument was that STR's are artificially increasing prices beyond what owner occupants can afford.

A homeowner/occupant gets a homestead exemption, with a yearly cap of a 3% increase in assessed value.

Commissioner, 74 T.C. 1134 (1980) (“The taxpayer’s intent at the time of the exchange is controlling and must be determined.”)Courts consider the following factors in assessing if the property was held for sale: (1) the nature and purpose of the acquisition of the property and the duration of the ownership; (2) the extent and nature of the taxpayer’s efforts to sell the property; (3) the number, extent, continuity and substantiality of the sales; (4) the extent of subdividing, developing, and advertising to increase sales; (5) the use of a business office for the sale of the property; (6) the character and degree of supervision or control exercised by the taxpayer over any representative selling the property; and (7) the time and effort the taxpayer habitually devoted to the sales.

This means that many elderly people who could not afford to move due to their property taxes increasing when they buy a new home will now be able to bring their old tax basis with them to a new home in California.

He said I can have the house reassessed at the fair market value and defer the capital gains (but have a large increase in property tax). 

A fixed interest rate of 5% for 10 years is extremely attractive for an uncertain time in interest rates. 

Keep what you've got and focus your energy on how to increase cash and prepare for the next purchase.

Then, increase all of your deductibles to the highest level you can afford and feel comfortable with.