You, undoubtedly need a good spreadsheet for this and should take into consideration all of the factors involved:
Appreciation/Depreciation of the asset.
Your taxable basis in the property and any capital gains taxes you may pay when selling.
Real Estate Transaction Costs – for selling, then buying again.
What portion of those Real Estate Costs are tax-deductible.
Change in Property Tax Base and how much your property taxes will increase (or decrease).
The amount of tax you will save due to interest write-offs.
The cost of moving.
The cost of maybe moving a couple of times if your new rental gets sold out from under you.
The value of your time and the state of your career. Doing this stuff (selling houses, moving, buying houses) just sucks time from your life. If you have a serious enough career to be putting $4K into housing each month, you may be able to get better use of your time by hunkering down and earning money at work rather than monkeying with real-estate.
The quality of your investments – what will you do with the cash you take out of the house? Put it under a mattress or invest in a CD, or play the stock market?
My intuition tells me that if I were in your shoes I would be more content staying put, but you really need to do some serious number crunching. If you are younger and have more energy than me, maybe the moving/shifting would be less of a pain.
Also, as the rates on CDs grows higher than the interest rate on your mortgage, you might consider making that extra payment into investments which pay better than 4.85% with no risk.
