NEW YORK (CNN/Money) -
How good an investment is your home? Seems like a simple enough question. But for most of us, coming up with a clear-eyed analysis of the value of our house is tough.
After all, your house is more than bricks and mortar, it's where your children grow up and you share family memories.
Most homeowners talk about the meteoric rise in home prices when they think investment values. After all, median prices are up 7.4 percent this year to $174,100 as of March. But there's more to value than price tags.
So where do you start and, what can you do to maximize your investment? Here are today's five tips.
1. Think total return.
One way to think about what your house is worth is to apply the metrics of the stock market.
Total return on a stock is the combination of dividends and capital gains. The capital gains part of the equation for housing is easy enough to figure out -- compound growth in housing prices has been rising at a rate of 5.8 percent a year. Check the Web site of the Office of the Federal Housing Enterprise Oversight to find a growth rate that applies to your market).
Next, add in what Peter Coy at BusinessWeek calls the "dividend," or that amount of money you save each year by not having to pay rent to a landlord. Be sure to take out any homeowner's expenses, such as utilities and upkeep. For many people the annual dividend is roughly 6 or 7 percent.
To make your own calculation, simply scan your newspaper's real estate ads to get a sense of how much a house of similar size and in a similar location would rent for in your neighborhood.
Another bit of analysis you may want to conduct: an estimate of just how overvalued your home might be. Just as a price-to-earnings ratio in the stock market helps investors determine when they are overpaying for a stock, a P/E can also be calculated for your castle.
Divide the price your house is likely to draw in today's market by the price it could fetch as a rental. Naturally, as with stock market P/Es, you'll have to make comparisons over time and between markets, according to UCLA economist Ed Leamer.
2. Understand leverage.
Part of the equation of determining your return year to year -- and one of the big advantages of real estate -- is the fact that your returns are figured on a small outlay compared to the value of the asset.
You are, in effect, using other people's money to make your own money and magnify your return.
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 Putting a price tag on the house where your children grew up may be tough. CNNfn's Gerri Willis has five tips that will help you determine your house's value.
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Think of it this way: let's say you bought a $500,000 house in cash, and its price went up to $505,000 after one year. Your annual return on your $500,000 investment would be a measly one percent. The vast majority of homebuyers, as we all know, take out a mortgage loan, putting down a fraction of the home's value, increasing their leverage and their returns.
Consider, if you buy the house with a $5,000 down payment, and the home rises $5,000 in value, then the annual return is a whopping 100 percent.
3. Cut your transaction costs.
Now that you know how to analyze your home as an investment, it's time to start managing your home as an investment.
To improve the value of it, you'll want to think about those costs that can add up in a hurry -- like transaction costs. Remember, stock investing became much more attractive after commissions were deregulated. But for housing, transaction costs are high.
Consider this comparison from Coy, "you don't want to be churning over your house every couple of years. To sell $500,000 in stock may cost you $300 if you got a good discount broker. To sell a $500,000 house could cost you $40,000 after you pay a broker and every other lawyer fee."
Reduce your outlay -- and improve your return -- by holding the investment for a longer period of time.
4. Think liquidity.
Popular wisdom holds that real estate is an illiquid investment. Think about it: To sell a home, you have to hire a real estate agent, market the property, hold an open house.
But these days, consumers have more access to their home equity without selling their homes. In addition to the tried and true home equity loan and home equity line of credit, cash-out refis have gained popularity. These products allow consumers to tap the equity in their home and lock in a lower rate of interest as well.
5. Don't forget the differences.
While there are plenty of similarities between real estate and other types of investment, such as stocks and bonds, there are also big differences.
One big issue: inflation. Strip the impact of inflation out of home price appreciation, and home prices rose at a measly 0.4 percent a year between 1975 and 1995. That's the bad news.
The good news? Other asset classes get creamed by inflation. Bonds returns, for example, are steadily eroded by inflation; while stock values can be hurt as well as companies lose control over their costs.
Another comparison: The ease of selling. Unloading a stock or bond is as easy as picking up the phone and calling your broker, but selling a house takes more time. True, you can tap your equity with ease, but selling on a moment's notice can be difficult and expensive.
Gerri Willis is a personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to 5tips@cnnfn.com.
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