My wife and I enjoyed out stay at Hostal Alcazaba. It's nothing fancy, but for the price (€36 for a double with A/C), it's a very good deal.
The location is practical. One can walk to Sacromonte and Albayzin (the older, more charming parts of Granada) from there (uphill, good workout!). One could even walk to the Alhambra, but that would be a much longer walk, also uphill, of course. Instead, we preferred to take bus 30, not far from the hostal. Easy (€1.20/person). On the day of our arrival, we also took a bus to the hostal from the main bus station (bus 3 drops you off at only a short walk away). Surely, there's accomodation in more charming locations (at Sacromonte, or even inside the Alhambra, starting at €90 a night), but for the price, Alcazaba seems alright. There are restaurants around, a small supermarket and an ice-cream/coffee shop that was always busy with customers.
The owner of the hostal speaks English, was friendly and took the time to tell us a bit about our surroundings and how to get to the Alhambra. We asked him where to eat and he recommended some restaurants not far from the hostal, which we actually never wound up going to. (The ones right nearby, we found out ourselves, were passable but not great).
Our room looked very decent, was pretty spacious and very clean. The walls seemed newly painted. The bathroom had a bathtub with shower. The two single beds were comfortable. Hanging on the wall, there was a very small, dinosaur TV (cathode tube), which we never turned on. The air conditioning worked very well. Some rooms have a standing fan instead of an A/C, so you may want to contact the hostal about this if it's very important to you. (We were told the difference between a room with a fan vs. an A/C is only 2 euros per night.) A little soap bar wasn't offered, as is customary in most hostals, but it's understandable, considering the price.
The room was relatively quiet and we slept well, better the second night than the first. The first night (or I should say, in the wee hours the next morning), a group of locals walked by at some point, singing and playing the guitar (remarkably well, I should say). Minutes later, they were gone, thank goodness. Then again, it was the weekend at Granada. Also at some point, early at night, we could hear some people in the next room who were speaking quite loudly, but that didn't last long and wasn't an issue. The second night was perfectly silent.
For those interested, I believe the hostal offers at the reception a computer with internet access.
In case you're looking for a Flamenco show, we went to a place called Los Jardines de Zoraya ( http://www.jardinesdezoraya.com/ ) in the Albayzin neighborhood. We walked there back and forth from the hostal, which took about 35 minutes uphill. We could have taken a taxi (very affordable in Spain), but preferred to walk. The dinner + flamenco menu was €35/person. The food was decent, the staff were friendly and the surroundings were beautiful. Surely, there must be less tourist-oriented flamenco clubs in Granada, but my wife and I (who know nothing about flamenco) enjoyed this show.
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