Herin are a number of ways your magic item might come into being, apart from something you order from your local wizard.
A standard roleplaying environment: the tavern. This is another easy one to create in your own home, providing you have a large enough group of roleplaying friends. Let us assume your PC group is no larger than five, and that the rest of your friends can be NPCs. Let us also aim for an exceptionally seedy and unscrupulous city tavern.
In a good LARP it is desirable to separate the players out individually at some stage, because they are more suggestible and afraid when they are alone. Some form of individual challenge is probably the best way of doing this. One possible setting for this is a cave system, and it is probably one of the easiest to recreate realistically, and one of the most perfect for playing on fears of claustrophobia and darkness.
The Rhenn Plains are serene and peaceful, beautiful, and quiet as if nothing had ever had happened to it, hiding away it's violent present and past. During some time ago, the countries needed land to fight on, for they did not want war to come to their home, so they chose the Rhenn Plains, Armies met there and men died on the lands, so the land has been empty always. But now there has been set an outpost and they are beset by the goverments wanting to keep it free, will the soldiers of the barracks prevail, or fall trying?