Probably a better plan. We stayed in a "bach" (which is a New Zealand beach holiday cottage) right on Hot Water Beach. There was a small store across the road, but nowhere to dine or buy decent food for miles, so stock up on the way in Whitianga.
The "Hot Water" only works for a few hours at low tide, so time your visit very well. Also, it only operates in a very, very small location, so pick your spot early, and well. Even a metre to one side and it doesn't work.
The must see here is Cathedral Cove. There's a walk from a carpark just above Hahei (which is a little to the north of Hot water). It's a 45 minute walk down but the rewards are superb - and it's a great walk, so either do this on day one or early on day 2, depending on the low tide time at Hot water Beach.
I'm not a big fan of Taupo, but it is a nicer and cleaner town that Rotorua, which stinks, and is very touristy. However most of the sites you want to see are either in Rotorua, or closer to Rotorua than Taupo. I'd suggest Wai-o-Tapu, which has great thermal scenes, there's the free walk through the main park in Rotorua, and there's also a fabulous forest walk on the edge of Rotorua.
If you're into Lord of the Rings, the set for "Hobbiton" is well worth a visit at Matatmata, north of Rotorua.