Mixed use building with historic tax credits - Good deal?

[Ryan McNeill]

I have an opportunity that looks promising upon initial calculations, but I want to make sure I'm not missing anything.  Another investor who currently owns a building is asking if I want to partner up on the deal.  The cost for me to buy 50% of his property is $75,000 (so we're assuming a $150,000 pre-renovation value on the property). Estimated total renovation costs are at $240,000, so my half would be $120k in renovation costs.  It is a mixed-use building with 4 apartments upstairs (estimated rentals at $1000/unit.) and 2 commercial spaces below (at $1000/unit), so estimated gross rents are $6000/mo.  I don't have solid numbers on ongoing expenses, so I'm just using the 50% rule.

This building would likely qualify for historic tax credits on the renovation, so we could expect to receive 40% of that $230k renovation (or ~$96,000) back in tax credits that we would split. When I'm calculating this deal, do I subtract the tax credits up front, so that I'm estimating a $144,000 renovation? Even after reading a few articles, I'm still a bit cloudy on how renovation costs figure into my overall calculations (and whether it should be considered when trying to calculate a CAP rate). Can anyone help?