Your question generates a host of other questions that need to be answered to answer your first one. What is important to you, where do you work, are you going to live there or is it just an investment, what about the girls, what about your spouse or significant other, dog, cat, what is a lot of $$, what do you want to be close to, how do you like to spend your spare time, etc.
As far as real estate in Knoxville goes....there has not been a bubble in Knoxville. We have experienced steady, moderate appreciation over the last few years. If you ask the right questions and listen to the answers it is hard to loose money in real estate in Knoxville. I'd suggest you contact a real estate agent (yes, I am one but it doesn't have to be me) and discuss this further with him/her. Knoxville is a great place to live, so come on over and join us.
Students generally move off campus second year and the cost of rentals in downtown averages around $500.00 for a bedroom in shared units. My son has mentioned many times the convenience of having his own parking space two blocks off Cumberland (his building has gated parking garage with deeded spaces. Also, by owning , you avoid having to move in and out of dorms or other rentals - this can get to be a hassle and an expense. UT shuts down dorms during Winter Break, so if you are living in a dorm and have a job you want to work over the long winter break, you have to find another place to stay unless you live close enough to move home for the break.
I hope this has been helpful. Feel free to contact me with any further questions. My advice is to get as close to campus as possible, make sure the unit has assigned parking, and check out how the units common spaces are managed (HOA and/or Real Estate Management). If you are planning on long term investment, I would avoid anything with a lot of amenities (pools, etc.) as they tend to have higher maintenance fees and could have some steep assessments down the road as those amenities age.
I think there are already a lot of great answers below, but I will throw in my two cents! Although Fort Sanders is closest to UT many of the condos in downtown Knoxville and the surrounding areas are literally within walking distance. Traditionally condos downtown have a much higher cost per square foot; so, if you need multiple bedrooms and an average lower cost you will probably need to look outside of downtown unless you want to spend in the 350K and up range. For example there are condos on the other side of the river in South Knoxville that you could either rent or purchase at a much lower cost than what you would find in downtown Knoxville. They will be building a walking bridge which will land close to the University within the next year and a half which will give you the convenience of being close but the feeling of seclusion you might prefer (they also have a pool and a park nearby which is great for the girls). This is just one possible solution.
As some other agents have noted although the market has slowed significantly; however, if you are looking to own a home for many years then you should (in theory) have the opportunity to recoup any investment you would make. What I am certain of is that there are many great opportunities in the Knoxville area and that we can find the right property to suit your needs. If you are not working with anyone yet feel free to reach out to me! Thanks, Shannon: 865-617-8287.