This is definitely a neat workaround , but I’m concerned about the performance cost (requires two RTs and a scene capture component). It’s also a bit of a pain to set up. There’s a fair few more steps than you have covered in your explanation 
DON’s Mesh painting looks cool, but If it’s just decals I guess that means you can’t get the same kind of vertex deformation stuff that Ryan has going on. It looks like it’d be great for say, a paintball game, but it’s not going to be able to simulate a piece of meat torn out of a body, or a bullet hole with an exit wound.
It’s really a shame that there isn’t any “out of the box” hitmask support in UE4. It was a pretty neat feature back in UE3, and was quite simple to set up and performed quite well.