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Advice for kid-friendly NZ itinerary in August?

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We are a family of five: 2 children (5 & 8 years old), two adults and one senior - about 80 years old) traveling to New Zealand in August 2015. We would like to see New Zealand's natural wonders and experience its culture but, because of younger and older members of our group we are not extremely mobile (e.g. no bungy jumping, skiing or long hikes). One person in our group is also a Lord of the Rings fan.

We are exploring two options for a 10 day trip in the last two weeks of August, and we would really appreciate your advice!!! Thank you in advance!

Option #1

Fly into Queenstown from Sydney, Austrailia
2 nights in Queenstown
Drive to from Queenstown to Te Anau
2 nights in Te Anau with daylong tour of Milford Sound
Drive from Te Anau back to Queenstown
2 more nights in Queenstown
Fly from Queenstown to Wellington
2 nights in Wellington
Drive from Wellington to Rotorua
1 night in Rotorua
Drive to from Rotorua to Auckland (with visit to Matamata en route)
1 night in Auckland


Option #2

Fly into Christchurch from Sydney, Austrailia
1 night in Christchurch
Drive from Christchurch to Dunedin
1 night in Dunedin
Drive to from Dunedin to Te Anua
2 nights in Te Anua with daylong tour of Milford Sound
Drive to from Te Anua to Queenstown
2 nights in Queenstown
Fly from Queenstown to Wellington
2 nights in Wellington
Drive from Wellington to Taupo
1 night in Taupo
Drive to from Taupo to Auckland (with visit to Hobbiton en route)
1 night in Auckland


Questions:

1. Would it be better to visit Taupo or Rotorua?
2. Would it be better to spend most of our time South Island time in the Queenstown and Te Anau areas or also include Christchurch and Dunedin?
3. Is there another highlight we might be missing?
4. Are we likely to experience snow on the driving routes we've selected? Does snow ever close roads or lead to major travel challenges?
5. What is best way to find lodging for a group like ours?
6. Are these itineraries crazy? If so, does anyone have other suggestions?

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