Masonry bit will do you fine for drilling in LR. I'm not convinced about your no-overflow overflow. I wouldn't do it. Here's the reason why: If I have a problem with my bulkheads or some other issue where I have to undo the plumbing, I just have to empty out my overflow area. You, on the other hand, will drain your whole tank. Just a thought!
You break that pipe off in the tank and you're gonna have a lot of dead stuff and a whole lot of water to mop up. HTH.
Paco