It is easier to compare closing costs when pre-paids are ignored. 

@Rachel OdumuYour estimated closing costs are mostly variable because they include items such as lender fees (origination, processing, underwriting), title fees, attorney fees, recording fees, prepaid property taxes, prepaid interest, prepaid home insurance, etc.

So closing costs all in (outside of prepaids) on a $40k net cash out to me loan would have to be below $2800. 

Am I legally allowed to ask for the entire seven months rent to be pre-paid in a lump sum?

… @Lesley WhitleyThe new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).

They also prepaid six months rent!

I don't believe Ohio has any law regarding prepaid rent.However, if a tenant terminates a lease early, you are obligated to try and find a replacement tenant as quickly as possible and then release the first tenant from any remaining obligation.

Depending on the type of property, you will need 20-40% down payment, plus your closing costs and a few months of pre-paid interest (closing costs and pre-paid interest can be paid by the seller if you can negotiate that).

I does include prepaid property taxes and the 1st years insurance premiums.

I don't see anything in your post that would be a red flag for commercial.There are certain fees you cannot get a multiple discount on... for example, you will have to get an appraisal for each property, title fees will be per property, pre-paids (taxes and insurance), etc... you can't get any big discounts on these.. they are what they are.