Magnetic doping with transition metal ions is the most widely used approach to break timereversal symmetry in a topological insulator, a prerequisite for unlocking the TIs exotic potential. Recently, we reported the doping of Bi2Te3 thin films with rare earth ions, which, owing to their large magnetic moments, promise commensurately large magnetic gap openings in the topological surface states. However, only when doping with Dy has a sizable gap been observed in angle-resolved photoemission spectroscopy, which persists up to room-temperature. Although disorder alone could be ruled out as a cause of the topological phase transition, a fundamental understanding of the magnetic and electronic properties of Dy:Bi2Te3 remained elusive. Here, we present an X-ray magnetic circular dichroism, polarized neutron reflectometry, muon spin rotation, and resonant photoemission study of the microscopic magnetic and electronic properties. We find that the films are not simply paramagnetic but that instead the observed behavior can be well explained by the assumption of slowly fluctuating, inhomogeneous magnetic patches with increasing volume fraction as the temperature decreases. At liquid helium temperatures, a large effective magnetization can be easily introduced by the application of moderate magnetic fields, implying that this material is very suitable for proximity coupling to an underlying ferromagnetic insulator or in a heterostructure with transition metal-doped layers. However, the introduction of some charge carriers by the dopants cannot be excluded at least in these highly doped samples. Nevertheless, we find that the magnetic order is not mediated via the conduction channel in these rare earth doped samples and therefore magnetic order and carrier concentration are expected to be independently controllable. This is not generally the case for transition metal doped topological insulators.