Loot can be a very important part of any RPG, to some it can even be an integral part no game should go without, but loot can get dull and uncreative quickly. And while many game systems come with handbooks full of good examples, they can sometimes lead to meta-gaming, predictability, and other issues you probably wish to avoid. The solution is simple: use your own invented loot. Unfortunately creating such loot isn't always as easy, but this guide will hopefully help you through that process.
Creating your own loot, in terms of different stats and abilities, isn't always necessary. Thematic loot alone can help spice up any looting session, which I've talked about briefly in the loot distribution guide as well. If the party has killed a nest of bug-like, alien creatures, rewarding the players with an insect egg, a bunch of chitin (the material insect exoskeletons are made of), or a mysterious, honey-like substance could provide fun loot that might be completely useless, but is unique to the encounter. Figuring out what the loot is can be fun in and of itself too.
Not every encounter will allow for more unique loot like the previous example, but changing the flavor of regular loot can go a long way too. The same plain sword could be a mold and moss covered sword in a damp dungeon, a frosty sword still attached to the severed hand of its previous owner in a frozen tundra, or covered in barnacles if found in a sunken ship. Little details like this help make the world feel more cohesive and alive, and the loot more original. All it takes is a little creativity when describing what's in essence the exact same loot.
On the topic of flavor, sometimes adding mostly useless abilities or characteristics to loot can help make loot more original and seem like an upgrade over other loot, even when that upgrade is only minimal.
Say you have a shield created from a force field (think Reinhardt's shield from Overwatch), a different loot version could be one that allows for cosmetic changes at will (color changes, shape changes, etc.), or it may have a crest of an ancient hero that will be recognized by some people and cause them to stare in admiration when you walk down the street (similar to having an expensive car in real life), for example.
The stats of the shield would be the exact same as the stats of the shields already available in the party, so balance issues are non-existent from a numbers point of view, but this new version still allows for some more creativity when it comes to playing the game. From a social point of view, this added flavor could grant the party new powers too. That crest that might be recognized could open or close certain social doors, for example, which in turn can lead to all sorts of quests.
Sometimes you definitely want loot with some extra power though. Walking around in base level gear at mid to high character level isn't exactly ideal after all, so a few upgrades here and there will be very welcome. But how much power should you add to an item to avoid making it overpowered? The answer is difficult to pin down, it depends on the character levels, the amount of characters, what kind of encounters they usually deal with, and a whole bunch of other variables.
The easiest place to start is with existing items found in a handbook. There's usually some rating system that'll tell you which items in the book are suited for which level characters, and the stats of those items can help determine the stats you'll give your items. Some test rolls might need to be made before you hand out the item, but finding imbalances can often be merely a case of needing to play the game enough with that item in play. Players often find creative ways to use items you won't have thought of.
Using the previous force-shield example, allowing a color changing shield could mean increased camouflage or an invisible (transparent) shield, for example. A size-changing one could mean a somewhat hidden, bullet-proof vest.
How do you solve such issues? Part of it is just accepting these things will occur, and simply working around them as they come up. Depending on your group, you might be able to change items too. This isn't always ideal though, as tuning down an item can seem like a punishment and could promote more sneaky ways of play, like saving a specific use for a boss battle before being downgraded.
The easiest solution is usually by merely upgrading your NPCs too. If the party has access to something, other characters likely will as well. If they do, the playing field is usually leveled again.
A different way to approach loot is by using unlockable or hidden powers to spice things up. Hidden powers are often a little more tricky, but only because, depending on the powers, they might not come into play until a specific event occurs. A sword might vibrate when a specific type of enemy is nearby, for example, or a shield might glow only in total, absolute darkness. If the party doesn't encounter circumstances where this can trigger, or finds solutions before this becomes viable, it can take a while before these powers can be revealed. These still make for a great surprise though, if not for a better one, as it shows planning and cunning, which in turn likely makes the players wonder what else awaits them and their loot.
Other methods of hidden and unlockable abilities include a weapon that unlocks new powers after absorbing the blood of x amount of enemies or enemy types, armor that does something when taking x amount of damage over time or at once, a different, better metal hidden beneath a top layer that's only revealed after being chipped away by battle or intense heat, and a whole range more.
Having hidden abilities like this can add a lot of drama too. The vibrating sword could warn of an incoming ambush or hint at the true identity of an NPC, but before the party has figured out what the vibrating means, it could lead to a lot of testing or investigating. If timed right, it can also lead to dramatic reveals of previously established characters, whether they've changed or have been something all along.
For example, if the party acquires a new amulet that vibrates when a vampire is present, the amulet could eventually reveal a trusted NPC they've known forever is a vampire too or has perhaps been turned into one since their last encounter.
A different way to go about loot is by offering upgrades through set pieces or enchantments. Enchantments can come in many different forms, like powered gems used in many video games, or simply through spells already available in many RPG systems. Gems and other, similar enchantments offer fun ways to customize favored weapons with minor upgrades, but big gems can allow for bigger upgrades too, especially for those characters who are unwilling to part with their prized and beloved weapons that have been with them forever.
Gear sets offer a wide range of fun too. Not only can the first piece simply be on equal playing field compared to regular gear, the incremental power increases that come with gathering more and more pieces can become a quest in and of itself. Plus the last few pieces can suddenly become worth far more to the collector than what their actual value might be, which in turn offers great story elements.
If you're still stuck for ideas, most larger game systems have a wide variety of homebrewed content available online. People often post their creations online, often with details about how it worked in their game. These items are often ready to be used with a little tweaking to fit your universe, but could also offer a base to work from. Plus it can offer you a place to post your creations and potentially get feedback on them, which is always helpful.