I recently helped a couple of my clients lease out the houses they bought. They were leased in the $5k to $6k month range, located in Palo Alto. Your rental expectations are reasonable. Walking distance to town is not as straightforward.
Downtown Palo Alto is very vibrant, congested, with parking very limited. It might not be your first choice with a young family. California Ave many years ago was the center of the town of Mayfield which became part of Palo Alto. It is a little quieter and less congested. There are also several neighborhood shopping centers such as the Charleston Center near Middlefield Rd and Charleston Rd.
There have been 11 condos and 1 single family home sold in Palo Alto in 2012 for less than $900K, with 3 bedrooms. None of them were near downtown. Several were near the California Ave business district and several were near the Charleston Center. You might actually prefer either of these areas to downtown.
You can visit: http://julianalee.com/homes/2012/middlefield_rd_3510/home-fo
to see one of the lower priced single family homes near Charleston Center and also find a map of nearby points of interest such as shopping and parks.
I also sold several condos near there this year but the 3 bedroom condos were sold for over $900k.
Trinity Ln and Feather Ln see
Juliana Lee, MBA LLB
Top 3 agent nationwide at Keller Williams Realty
Over 20 years experience
Over 1000 home sales completed in Santa Clara and San Mateo counties
Web Refference: http://JulianaLee.com