Prerequisites:

1- Office 365 Licensed User.

2- Windows Server 2016 OS.

3- Public Static IP (To add to the SPF policy to avoid getting emails flagged as spam)

4- Allow outbound port 587 on your Firewall.

Regardless of Windows Operating system you’re going to install the SMTP Role the steps are the same. You’re going to install the SMTP Server feature from the Server Manager as following:

First Launch Server Manager (Windows 2016) and click on Manage\Add Roles and Features

Next

Click next to choose the installation type, Make sure you choose the Role-based or Feature type of installation

Next select the server where you want to install the SMTP Feature

Click next to head to the next step, The SMTP feature is normally located in the Features page not the role so proceed further by clicking Next

Scroll down in the Feature page until you get to SMTP Server

Click on the checkbox next to SMTP Server and add the features which will automatically pop up

Click Next

Click Next again, Leave unchanged here

Click Install and you will get your SMTP Server ready

Open IIS 6.0 Manager to Manage your Relay

To setup SMTP server for relay through Office 365 follow those steps:

Set up SMTP

Open Server Manager, select Tools, and then select Internet Information Services (IIS) 6.0.

1. – Expand the current server, right-click the SMTP Virtual Server, and then select Properties.
2. – On the General tab, select Advanced > Add.
3. – In the IP Address box, specify the address of the server that’s hosting the SMTP server.
4. – In the Port box, enter 587 and select OK.
5. – On the Access tab, do the following:

On the Access tab, do the following:

1. Select Authentication and make sure that Anonymous Access is selected.

Select Connection > Only the List Below, and then specify the IP addresses of the devices that will be connecting to the SMTP server, such as printers.

Select Relay > Only the List Below, and then specify the IP address of the devices relaying through this SMTP server

1. On the Delivery tab, select Outbound Security, and then do the following:
   1. Select Basic Authentication.
   2. Enter the credentials of the Office 365 user who you want to use to relay SMTP mail.
   3. Select TLS Encryption.
   4. Select Outbound Connections, and in the TCP Port box, enter 587 and select OK.
   5. Select Advanced and specify SMTP.office365.com as the Smart Host.

1. Restart the IIS service and the SMTP service.
2. 
   

https://technet.microsoft.com/en-us/library/dn592151v=exchg.150).aspx>

Let’s make a test by creating a notepad file with the following Test

Ref:

https://technet.microsoft.com/en-us/library/dn592151(v=exchg.150).aspx