It doesn't have to be awkward with the tenants, just explain that it's your company policy to send the demand letter and charge the late fee every single time rent is due, no matter what, and if it happens X number of times (whatever your policy is), then the next step is eviction.

If so I worded my questions awkwardly then.

I echo  @Jim Cummings - take caution when renting to family - it can be an awesome thing for them but it can turn awkward real quick without clear expectations.

I have other properties where the alleys are narrow, bumpy with an awkward entrance to the main street that's guaranteed the scrape the bottom of your car - in this case, I'd think about whether accessing the ADU from the main street would be better.

Suggest you hire a PMC to handle for you.They will have your family members sign a legal lease and be the bad guy when necessary.We've done this for clients in the past and the owner is often put in an awkward position when family/friends contact them about missed payments.

I'm also learning that the loan amount I'd like (400-500k) puts me in an awkward in-between position.

By doing so, you’ll set the stage for clear boundaries, allowing you to be both a friend and a landlord.Rent Payment Made Easy: Online Rental Property SoftwareCollecting rent from friends can sometimes lead to awkward conversations and delays.

How awkward is this going to be?  

It was an awkward and uncomfortable situation for all and escalated for the entire year. 

It sounds awkward.