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.
"It is said that among those people they have a loathsome custom- that they keep a spotted dog always waiting beside the gate of the yard where they bury the dead, and that in every funeral they allow this spotted dog to feast upon the dead, so that it grows fat and wise with the knowledge of the dead... Many necromancers do seek out these spotted dogs, and ask of them sciomantic knowledge, or take them as familiars." -Author unknown, "The Ways of the Necromancers"