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Step 1
First of all, you need to get a good feel for the main core of the character--when this character is faced with obstacles, what is going to come out of them? A great visual is thinking of the character like a tube of toothpaste--you can have whatever you want on the outside as far as appearance, but what's going to drive the plot is what happens when the character is squeezed.
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Step 2
If you're going for realism, your hero is going to need at least one major flaw (just as you can have a villain with some redeeming quality). Often you can take their greatest strength and have some element to it that can also makes it a weakness. There are also personality flaws--insecurity, arrogance, pride, etc. Keep in mind if you're doing a longer work such as a novel that you can take your hero from where they are and have them overcome or at least address their flaw by the end of the story.
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Step 3
Make an effort to make sure your hero and villain are at least evenly matched, and when in doubt make it a harder fight for your hero. If you make things too easy, you're not going to have a sharp enough conflict to drive your story forward.
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Step 4
Consider how the other characters in your story view the hero--like anything in real life, perceptions are going to vary. Great examples of this are comic book heroes, who almost always have someone who sees them more as a villain even when they're not.
