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Everything which isn't illegal is legal.
Flipping domains is NOT illegal. It's just some form of commerce, after all.
(trademark legal problems aside, as mentioned above)
It's the same concept at flipping real estate. Buy a piece of land, wait for the value to go up, and resell it for a higher price than you paid for it. So, the concept is not illegal at all. The same could be said for:
Domain flipping is legal, but you can get in trouble if you own a domain with a trademark. I found this article about avoiding domain trademark infringement useful.
Domain flipping is legit. Some people think that flipping domains is taking advantage of people who need website names for their blog or business, but the practice is completely legal