Hi supersavo,
I work in the centre of Madrid but live 50km away in a smallish village called Valdemorillo specifically because I wanted to buy a house, however for renting there would be no need to go so far out, we previously rented in a very nice village called Brunette although we rented a flat it was on the ground floor and hence had a nice private garden area so that is an option perhaps? A house in that area could rent for about 1000 euro a month + bills. As you get further away from Madrid rent price goes down, especially now with the housing market as it is many people are holding onto their properties and renting them out and this has made the rental market more competitive for renters. Ultimately your decision will be dictated probably by exactly where your job is and where your kids go to school i guess. Lots of expats in places like Las Rozas, Majadahonda, Aravaca, Pozuelo, Villa Nueva de la Canada, Brunette.
I don’t have kids so can’t help with any of that side of things but if you need anything else give me a shout…
Ranpal